<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 30, 1999
REGISTRATION NO. 333-60355
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 11
TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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APARTMENT INVESTMENT AND MANAGEMENT COMPANY
AIMCO PROPERTIES, L.P.
(Exact name of co-registrant as specified in its charter)
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MARYLAND 84-1259577
DELAWARE 84-1275621
(State or other jurisdiction of incorporation or (I.R.S. Employer Identification Number)
organization)
1873 SOUTH BELLAIRE STREET, 17TH FLOOR PETER KOMPANIEZ
DENVER, COLORADO 80222 PRESIDENT
(303) 757-8101 1873 SOUTH BELLAIRE STREET, 17TH FLOOR
DENVER, COLORADO 80222
(303) 757-8101
FAX: (303) 753-9538
(Address, including zip code, and telephone number, (Name, address, including zip code, and telephone
including area code, of co-registrants' principal number,
executive offices) including area code, of agent for service)
</TABLE>
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Copy to:
JONATHAN L. FRIEDMAN
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
300 SOUTH GRAND AVENUE
LOS ANGELES, CALIFORNIA 90071
(213) 687-5000
FAX: (213) 687-5600
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Approximate Date of Commencement of Proposed Sale to the Public: From time
to time after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and if there is compliance
with General Instruction G, check the following box. [ ]
If the Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
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CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TO BE REGISTERED REGISTERED OFFERING PRICE PER UNIT(1) AGGREGATE OFFERING PRICE REGISTRATION FEE(2)
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Preferred Stock, par value $.01
per share(3)....................
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Class A Common Stock, par value
$.01 per share(3)...............
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Partnership Preferred Units(4).... $200,000,000 $200,000,000
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Partnership Common Units(4)....... $200,000,000 $200,000,000
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Total.................... $1,000,000,000 (1) $1,000,000,000 $295,000
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(1) To be determined, from time to time, by the Registrants in connection with
the issuance of the securities registered hereunder.
(2) Calculated pursuant to Rule 457(o) of the rules and regulations under the
Securities Act of 1933, as amended.
(3) To be issued by Apartment Investment and Management Company ("AIMCO"). The
amount of such securities registered hereby includes (i) shares of Preferred
Stock and Class A Common Stock of AIMCO issuable in exchange for Partnership
Preferred Units or Partnership Common Units of AIMCO Properties, L.P.
tendered for redemption pursuant to the agreement of limited partnership of
AIMCO Properties, L.P., plus such additional number of shares of Preferred
Stock and Class A Common Stock as may be issuable pursuant to the
antidilution adjustment provisions of such agreement and (ii) shares of
Class A Common Stock of AIMCO issuable upon conversion of shares of
Preferred Stock of AIMCO. In no event will the aggregate maximum offering
price of all securities registered under this Registration Statement by
AIMCO exceed $600,000,000.
(4) To be issued by AIMCO Properties, L.P.
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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EXPLANATORY NOTE
This filing includes (i) a base prospectus to be used for the offering and
issuance of securities in connection with acquisitions of businesses,
properties, securities or other assets, and (ii) 2 prospectus supplements
relating to exchange offers for units of limited partnership interest in the
limited partnerships set forth below.
Ravensworth Associates Limited Partnership
Sycamore Creek Associates, L.P.
In accordance with Rule 472(b) the Registrants have not refiled the 89
prospectus supplements for the 88 partnerships listed below which were filed
with previous Amendments since no changes have yet been made to such documents.
Such prospectus supplements remain a part of this Registration Statement and
will be refiled, as appropriate, in future Amendments. This Registration
Statement will not be used for exchange offers with respect to the following
partnerships until the Staff of the Securities and Exchange Commission has
completed its review of the related prospectus supplements:
Angeles Income Properties, Ltd. 6
Angeles Income Properties, Ltd. III
Angeles Income Properties, Ltd. II
Angeles Income Properties, Ltd. IV
Angeles Opportunity Properties, Ltd.
Angeles Partners VII
Angeles Partners VIII
Angeles Partners IX
Angeles Partners X
Angeles Partners XI
Angeles Partners XII
Angeles Partners XIV
Baywood Apartments, Ltd.
Brampton Associates Limited Partnership
Buccaneer Trace Limited Partnership
Burgundy Court Associates L.P.
Calmark/Fort Collins, Ltd.
Casa Del Mar Associates Limited Partnership
Catawba Club Associates, L.P.
Cedar Tree Investors Limited Partnership
Century Properties Fund XIX
Century Properties Fund XVI
Century Properties Fund XVIII
Century Properties Growth Fund XXII
Chapel Hill, Limited
Chestnut Hill Associates Limited Partnership
Coastal Commons Limited Partnership
Consolidated Capital Institutional Properties/3
Consolidated Capital Institutional Properties/2
Consolidated Capital Properties III
Consolidated Capital Properties IV
Consolidated Capital Properties V
Consolidated Capital Properties VI
Davidson Diversified Real Estate I, L.P.
Davidson Diversified Real Estate II, L.P.
Davidson Diversified Real Estate III, L.P.
Davidson Growth Plus, L.P.
Davidson Income Real Estate, L.P.
DFW Apartment Investors Limited Partnership
DFW Residential Investors Limited Partnership
Drexel Burnham Lambert Real Estate Associates II
Four Quarters Habitat Apartment Associates, Ltd.
Fox Strategic Housing Income Partners
Georgetown of Columbus Associates, L.P.
HCW Pension Real Estate Fund Limited
Partnership
Investors First-Staged Equity
Johnstown/Consolidated Income Partners
La Colina Partners, Ltd.
Lake Eden Associates, L.P.
Landmark Associates, Ltd.
Minneapolis Associates II Limited Partnership
Multi-Benefit Realty Fund '87-1-Class B*
Multi-Benefit Realty Fund '87-1-Class A*
National Property Investors 8
Northbrook Apartments, Ltd.
Olde Mill Investors Limited Partnership
Orchard Park Apartments Limited Partnership
Park Towne Place Associates Limited Partnership
Quail Run Associates, L.P.
Rivercreek Apartments Limited Partnership
Rivercrest Apartments Ltd.
Riverside Park Associates L.P.
Salem Arms of Augusta Limited Partnership
Shaker Square, L.P.
Shannon Manor Apartments, a Limited Partnership
Sharon Woods, L.P.
Shelter Properties III
Shelter Properties IV
Shelter Properties VI
Shelter Properties VII Limited Partnership
Shearson/Calmark Heritage Park II, Ltd.
Snowden Village Associates, L.P.
Springhill Lake Investors Limited Partnership
Sturbrook Investors, Ltd.
Texas Residential Investors Limited Partnership
Thurber Manor Associates, L.P.
U.S. Realty Partners Limited Partnership
United Investors Growth Properties
United Investors Growth Properties II
United Investors Income Properties
Villa Nova, Limited Partnership
Walker Springs, Limited
Wingfield Investors Limited Partnership
Winrock-Houston Limited Partnership
Winthrop Apartment Investors Limited Partnership
Winthrop Growth Investors 1 Limited Partnership
Winthrop Texas Investors Limited Partnership
Woodmere Associates, L.P.
Yorktown Towers Associates
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* This offer will be combined into one prospectus supplement.
<PAGE> 3
PROSPECTUS SUPPLEMENT
(To Prospectus dated March 26, 1999)
AIMCO Properties, L.P.
is offering to acquire units of limited partnership interest of
Ravensworth Associates Limited Partnership
in exchange for your choice of:
4.00 of our 8.0% Class Two Partnership Preferred Units;
2.75 of our Partnership Common Units; or
$100 in cash.
Generally, you will not recognize any immediate taxable gain or loss if you
exchange your units solely for our securities. However, you will recognize
taxable gain or loss if you exchange your units for cash.
We have retained Robert A. Stanger & Co., Inc. to conduct an analysis of
our offer and to render an opinion as to the fairness to you of the offer
consideration from a financial point of view.
Our offer consideration will be reduced for any distributions subsequently
made by your partnership prior to the expiration of our offer.
We will only accept a maximum of 25% of the outstanding units in response
to our offer. If more units are tendered to us, we will generally accept units
on a pro rata basis according to the number of units tendered by each person.
Our offer is not subject to any minimum number of units being tendered.
You will not pay any fees or commissions if you tender your units.
Our offer will expire at 5:00 p.m., New York City time, on June 4, 1999,
unless we extend the deadline. You may withdraw any tendered units at any time
before we have accepted them for payment.
SEE "RISK FACTORS" BEGINNING ON PAGE S-23 OF THIS PROSPECTUS SUPPLEMENT AND
ON PAGE 2 OF THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF RISK FACTORS THAT
YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, INCLUDING THE FOLLOWING:
- We determined the offer consideration of $100 per unit without any
arms-length negotiations. Accordingly, our offer consideration may not
reflect the fair market value of your units.
- Your general partner is a subsidiary of ours and, therefore, has
substantial conflicts of interest with respect to our offer.
- We are making this offer with a view to making a profit and there is a
conflict between our desire to purchase your units at a low price and
your desire to sell your units at a high price.
- Continuation of your partnership will result in our affiliates continuing
to receive management fees from your partnership which would not be
payable if your partnership was liquidated.
- It is possible that we may conduct a subsequent offer at a higher price
more than one year after expiration of this offer.
- Unlike your partnership, our policy is to reinvest proceeds from the sale
of our properties or refinancing of our indebtedness.
- We may change our investment, acquisition or financing policies without a
vote of our securityholders.
- If you acquire our securities, your investment will change from holding
an interest in a single property to holding an interest in our large
portfolio of properties, thereby fundamentally changing the nature of
your investment.
- We cannot predict when the property owned by your partnership may be
sold.
- Recently, Moody's Investors Service revised its outlook for AIMCO's
ratings from stable to negative.
- There is currently no market for the Partnership Preferred Units or
Partnership Common Units.
Neither the Securities and Exchange Commission nor any State Securities
Commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this Prospectus Supplement or the accompanying
Prospectus. Any representation to the contrary is a criminal offense.
The Attorney General of the State of New York has not passed on or endorsed
the merits of this offer. Any representation to the contrary is unlawful.
March 26, 1999
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TABLE OF CONTENTS
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PAGE
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SUMMARY........................................ S-1
The AIMCO Operating Partnership.............. S-1
Affiliation with your General Partner........ S-1
Risk Factors................................. S-1
Background and Reasons for the Offer......... S-6
Valuation of Units........................... S-9
Fairness of the Offer........................ S-10
Stanger Analysis............................. S-11
Your Partnership............................. S-11
Terms of the Offer........................... S-12
Federal Income Tax Consequences.............. S-14
Comparison of Your Partnership and the AIMCO
Operating Partnership...................... S-14
Comparison of Your Units and AIMCO OP Units.. S-14
Conflicts of Interest........................ S-15
Source and Amount of Funds and Transactional
Expenses................................... S-16
Summary Financial Information of AIMCO
Properties, L.P............................ S-17
Summary Pro Forma Financial and Operating
Information of AIMCO Properties, L.P....... S-19
Summary Financial Information of Ravensworth
Associates Limited Partnership............. S-21
Comparative Per Unit Data.................... S-21
THE AIMCO OPERATING PARTNERSHIP................ S-22
RISK FACTORS................................... S-23
Risks to Unitholders Who Tender Their Units
in the Offer............................... S-23
Offer Consideration Not Based on Third
Party Appraisal or Arms-Length
Negotiation.............................. S-23
Offer Consideration May Not Represent Fair
Market Value............................. S-23
Offer Consideration Does Not Reflect Future
Prospects................................ S-23
Offer Consideration Based on Our Estimate
of Liquidation Proceeds.................. S-23
Offer Consideration May Be Less Than
Liquidation Value........................ S-23
Holding Units May Result in Greater Future
Value.................................... S-23
Conflicts of Interest with Respect to the
Offer.................................... S-23
Possible Subsequent Offer at a Higher
Price.................................... S-24
Possible Recognition of Taxable Gain on a
Sale of Your Units....................... S-24
Fairness Opinion of Third Party Relied on
Information We Provided.................. S-24
Loss of Future Distributions from Your
Partnership.............................. S-25
Possible Effect of the Other Exchange
Offers on Us............................. S-25
Risks to Unitholders Exchanging Units for OP
Units in the Offer......................... S-25
Fundamental Change in Nature of
Investment............................... S-25
Fundamental Change in Number of Properties
Owned.................................... S-25
Lack of Trading Market for OP Units........ S-25
Uncertain Future Distributions............. S-25
Possible Reduction in Required
Distributions on Preferred OP Units...... S-26
Possible Redemption of Preferred Stock..... S-26
Possible Recognition of Taxable Gains on OP
Units.................................... S-26
Limitations on Effecting a Change of
Control.................................. S-26
Limitation on Transfer of OP Units......... S-26
Limited Voting Rights of Holders of OP
Units.................................... S-26
Market Prices for AIMCO's Securities May
Fluctuate................................ S-26
Litigation Associated with Partnership
Acquisitions............................. S-26
Dilution of Interests of Holders of OP
Units.................................... S-27
Risks to Unitholders Who Do Not Tender Their
Units in the Offer......................... S-27
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Possible Increase in Control of Your
Partnership by Us........................ S-27
Recognition of Gain Resulting from Possible
Future Reduction in Your Partnership
Liabilities.............................. S-27
Possible Termination of Your Partnership
for Federal Income Tax Purposes.......... S-27
Risk of Inability to Transfer Units for
12-Month Period.......................... S-27
Possible Change in Time Frame Regarding
Sale of Property......................... S-27
Balloon Payments........................... S-28
SPECIAL FACTORS TO CONSIDER.................... S-28
BACKGROUND AND REASONS FOR THE OFFER........... S-28
Background of the Offer...................... S-28
Alternatives Considered...................... S-30
Expected Benefits of the Offer............... S-31
Disadvantages of the Offer................... S-32
VALUATION OF UNITS............................. S-34
FAIRNESS OF THE OFFER.......................... S-36
Position of the General Partner of Your
Partnership With Respect to the Offer;
Fairness................................... S-36
Fairness to Unitholders who Tender their
Units...................................... S-37
Fairness to Unitholders who do not Tender
their Units................................ S-37
Comparison of Consideration to Alternative
Consideration.............................. S-38
Allocation of Consideration.................. S-41
STANGER ANALYSIS............................... S-42
Experience of Stanger........................ S-42
Summary of Materials Considered.............. S-44
Summary of Reviews........................... S-44
Conclusions.................................. S-46
Assumptions, Limitations and
Qualifications............................. S-46
Compensation and Material Relationships...... S-47
YOUR PARTNERSHIP............................... S-47
General...................................... S-47
Your Partnership and its Property............ S-47
Property Management.......................... S-48
Investment Objectives and Policies; Sale or
Financing of Investments................... S-48
Capital Replacement.......................... S-49
Borrowing Policies........................... S-49
Competition.................................. S-49
Legal Proceedings............................ S-49
History of the Partnership................... S-50
Fiduciary Responsibility of the General
Partner of Your Partnership................ S-50
Distributions and Transfers of Units......... S-50
Beneficial Ownership of Interests in Your
Partnership................................ S-51
Compensation Paid to the General Partner and
its Affiliates............................. S-51
SELECTED FINANCIAL INFORMATION OF YOUR
PARTNERSHIP.................................. S-52
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OF YOUR PARTNERSHIP.......................... S-53
THE OFFER...................................... S-55
Terms of the Offer; Expiration Date.......... S-55
Acceptance for Payment and Payment for
Units...................................... S-55
Procedure for Tendering Units................ S-56
Withdrawal Rights............................ S-59
Extension of Tender Period; Termination;
Amendment.................................. S-59
Proration.................................... S-60
Fractional OP Units.......................... S-60
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Future Plans of the AIMCO Operating
Partnership................................ S-60
Voting by the AIMCO Operating Partnership.... S-61
Dissenters' Rights........................... S-61
Conditions of the Offer...................... S-61
Effects of the Offer......................... S-64
Certain Legal Matters........................ S-64
Fees and Expenses............................ S-66
Accounting Treatment......................... S-66
FEDERAL INCOME TAX CONSEQUENCES................ S-67
Tax Consequences of Exchanging Units Solely
for OP Units............................... S-69
Tax Consequences of Exchanging Units Solely
for OP Units............................... S-68
Disguised Sales.............................. S-69
Tax Consequences of Exchanging Units Solely
for Cash................................... S-70
Adjusted Tax Basis........................... S-70
Character of Gain or Loss Recognized Pursuant
to the Offer............................... S-70
Passive Activity Losses...................... S-71
Tax Reporting................................ S-71
Tax Consequences of a Termination of your
Partnership................................ S-71
Foreign Offerees............................. S-71
COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO
OPERATING PARTNERSHIP........................ S-73
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-81
DESCRIPTION OF PREFERRED OP UNITS.............. S-86
General...................................... S-86
Ranking...................................... S-86
Distributions................................ S-86
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Allocation................................... S-87
Liquidation Preference....................... S-87
Redemption................................... S-88
Voting Rights................................ S-88
Restrictions on Transfer..................... S-89
DESCRIPTION OF CLASS I PREFERRED STOCK......... S-89
COMPARISON OF PREFERRED OP UNITS AND CLASS I
PREFERRED STOCK.............................. S-91
CONFLICTS OF INTEREST.......................... S-95
Conflicts of Interest with Respect to the
Offer...................................... S-95
Conflicts of Interest that Currently Exist
for Your Partnership....................... S-95
Competition Among Properties................. S-95
Features Discouraging Potential Takeovers.... S-95
Future Exchange Offers....................... S-96
SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL
EXPENSES..................................... S-96
LEGAL MATTERS.................................. S-97
EXPERTS........................................ S-97
INDEX TO FINANCIAL STATEMENTS.................. F-1
PRO FORMA FINANCIAL INFORMATION OF AIMCO
PROPERTIES, L.P. ............................ P-1
OPINION OF ROBERT A. STANGER & CO., INC. ...... A-1
DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT
INVESTMENT AND MANAGEMENT COMPANY AND
AIMCO-GP, INC. .............................. B-1
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ii
<PAGE> 6
SUMMARY
This summary highlights some of the information in this Prospectus
Supplement and the accompanying Prospectus.
THE OFFER
In exchange for each of your units, we are offering you a choice of:
- 4.00 of our Class Two Partnership Preferred Units;
- 2.75 of our Partnership Common Units; or
- $100 in cash;
in each case, subject to reduction for any distribution subsequently made by
your partnership prior to the expiration of our offer.
We will accept a maximum of 25% of the outstanding units in response to our
offer. Our offer is not subject to any minimum number of units being tendered.
Our offer will expire at 5:00 p.m., New York City time, on June 4, 1999,
unless we extend the deadline.
The original offer price per unit in 1983 was $9,600. For the five years
ended December 31, 1998, your partnership paid no distributions.
THE AIMCO OPERATING PARTNERSHIP
AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts
substantially all of the operations of Apartment Investment and Management
Company, or "AIMCO." AIMCO is a real estate investment trust that owns and
manages multifamily apartment properties throughout the United States. Through
its wholly owned subsidiary, AIMCO-GP, Inc. ("AIMCO GP"), AIMCO acts as the sole
general partner of the AIMCO Operating Partnership. As of December 31, 1998,
AIMCO-GP and another AIMCO subsidiary, AIMCO-LP, Inc., a limited partner of the
AIMCO Operating Partnership (the "Special Limited Partner"), owned approximately
an 83% interest in the AIMCO Operating Partnership. As of December 31, 1998, our
portfolio of owned or managed properties included 379,363 apartment units in
2,147 properties located in 49 states, the District of Columbia and Puerto Rico.
Based on apartment unit data compiled by the National Multi Housing Council, we
believe that we are one of the largest owners and managers of multifamily
apartment properties in the United States. As of December 31, 1998, we:
- owned or controlled 63,086 units in 242 apartment properties;
- held an equity interest in 170,243 units in 902 apartment properties; and
- managed 146,034 units in 1,003 apartment properties for third party
owners and affiliates.
Our principal executive offices are located at 1873 South Bellaire Street,
Denver, Colorado 80222, and our telephone number is (303) 757-8101.
AFFILIATION WITH YOUR GENERAL PARTNER
As a result of our October 1, 1998 merger with Insignia Financial Group,
Inc. and our February 26, 1999 merger with Insignia Properties Trust, we
acquired a controlling ownership interest in the general partner of your
partnership, Winthrop Securities Co., Inc., and the company that manages the
property owned by your partnership.
RISK FACTORS
You should carefully consider the risks set forth under "Risk Factors"
beginning on page S-23 of this Prospectus Supplement and on page 2 of the
accompanying Prospectus. The following highlights some of the
S-1
<PAGE> 7
risks associated with our offer and the disadvantages of the offer to you and
should be considered when you review "Summary -- Background and Reasons for the
Offer -- Expected Benefits of the Offer":
RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER
OFFER CONSIDERATION NOT BASED ON THIRD PARTY APPRAISAL OR ARMS-LENGTH
NEGOTIATION. We did not use any third-party appraisal or valuation to determine
the value of any property owned by your partnership. We established the terms of
our offer, including the exchange ratios and the cash consideration, without any
arms-length negotiations.
OFFER CONSIDERATION MAY NOT REPRESENT FAIR MARKET VALUE. There is no
established or regular trading market for your units, nor is there another
reliable standard for determining the fair market value of your units. The offer
consideration does not necessarily reflect the price that you would receive in
an open market for your units. Such prices could be higher or lower than our
offer consideration.
OFFER CONSIDERATION DOES NOT REFLECT FUTURE PROSPECTS. Our offer
consideration is based on your partnership's historical property income. It does
not ascribe any value to potential future improvements in the operating
performance of your partnership's property.
OFFER CONSIDERATION BASED ON OUR ESTIMATE OF LIQUIDATION PROCEEDS. The
offer consideration represents only our estimate of the amount you would receive
if we liquidated the partnership. In determining the liquidation value, we used
the direct capitalization method to estimate the value of your partnership's
property because we think a prospective purchaser of the property would value
the property using this method. In doing so, we applied a capitalization rate to
your partnership's property income for the year ended December 31, 1997. In
determining the appropriate capitalization rate, we considered your
partnership's results of operations since December 31, 1997. If property income
for a different period or a different capitalization rate was used, a higher
valuation could result. Other methods of valuing your units could also result in
a higher valuation.
OFFER CONSIDERATION MAY BE LESS THAN LIQUIDATION VALUE. In determining our
offer consideration, we estimated your property to be worth $12,858,000, less
approximately $1,217,055 of deferred maintenance and investment. It is possible
that a sale of the property could result in your receiving more per unit than in
our offer.
HOLDING UNITS MAY RESULT IN GREATER FUTURE VALUE. You might receive more
value if you retain your units until your partnership is liquidated.
CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is a
subsidiary of ours and, therefore, has substantial conflicts of interest with
respect to our offer. We are making this offer with a view to making a profit.
There is a conflict between our desire to purchase your units at a low price and
your desire to sell your units at a high price.
CONFLICTS OF INTEREST RELATING TO MANAGEMENT FEES. Since our subsidiaries
receive fees for managing your partnership and its property, a conflict of
interest exists between our continuing the partnership and receiving such fees,
and the liquidation of the partnership and the termination of such fees.
POSSIBLE SUBSEQUENT OFFER AT A HIGHER PRICE. It is possible that we may
make a subsequent offer at a higher price, but not earlier than one year after
expiration of this offer. Such a decision will depend on, among other things,
the performance of your partnership, prevailing interest rates, and our interest
in acquiring additional limited partnership interests.
POSSIBLE RECOGNITION OF TAXABLE GAIN ON A SALE OF YOUR UNITS. In general,
if you exchange your units solely for our OP Units, it will not be a taxable
transaction. If you sell your units for cash, you will recognize taxable gain or
loss in an amount equal to the difference between the amount realized on the
sale and your adjusted tax basis in your units. If you exchange your units for
both cash and OP Units, it will be treated, for Federal income tax purposes, as
a partial taxable sale of such units for cash and as a partial tax-free
contribution of such units to our operating partnership. If you tender your
units for cash or for both cash and OP Units, the "amount realized" will be
measured by the sum of the cash received plus the portion of your
S-2
<PAGE> 8
partnership's liabilities allocated to the units sold for Federal income tax
purposes. To the extent that the amount of cash received plus the allocable
share of your partnership's liabilities exceeds your tax basis for the units
sold, you will recognize gain. Consequently, your tax liability resulting from
such gain could exceed the amount of cash you receive from us.
The particular tax consequences of the offer to you will depend upon a
number of factors related to your individual tax situation, including your tax
basis in your units, whether you dispose of all of your units in your
partnership, and whether the "passive loss" rules apply to your investments. You
should review "Federal Income Tax Consequences" in this Prospectus Supplement
and "Federal Income Taxation of AIMCO and AIMCO Stockholders," Federal Income
Taxation of the AIMCO Operating Partnership and OP Unitholders" and "Other Tax
Consequences" in the accompanying Prospectus. Because the income tax
consequences of an exchange of units will not be the same for everyone, you
should consult your tax advisor before determining whether to tender your units
pursuant to our offer.
FAIRNESS OPINION OF THIRD PARTY RELIED ON INFORMATION WE PROVIDED. Robert
A. Stanger & Co.'s analysis of our offer and opinion as to the fairness to you
of our offer consideration from a financial point of view relies on information
prepared by the general partner of your partnership (which is our subsidiary).
No tests of the underlying data were performed, and no independent appraisal was
conducted. Because the fairness opinion will not be updated, changes may occur
from the date of the fairness opinion that might affect the conclusions
expressed in the opinion.
LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. For any units that we
acquire from you, you will not receive any future distributions from your
partnership's operating cash flow or upon a sale of property owned by your
partnership or a refinancing of any of its debt. If you tender your units in
exchange for OP Units, you will be entitled to future distributions from us from
our operating cash flow and upon a dissolution, liquidation or wind-up of the
AIMCO Operating Partnership.
POSSIBLE EFFECT OF THE OTHER EXCHANGE OFFERS ON US. Concurrently with this
offer, we are making or intend to make similar offers to investors in
approximately 90 other limited partnerships. If all of these offers had been
completed by December 31, 1997, our net income for the nine months ended
September 30, 1998 would have been $24,703,000 instead of $41,493,000, based on
the assumptions included in the Pro Forma Financial Statements. If we borrow
funds for the cash consideration for these offers, our interest costs would
increase which could adversely affect our future earnings. If all units in all
the offers were purchased for cash and we borrowed all the funds, at current
interest rates, our interest expense would increase by $3,064,000 per year. See
"Pro Forma Financial Information of AIMCO Properties, L.P."
POTENTIAL DELAY IN PAYMENT. We reserve the right to extend the period of
time during which our offer is open and thereby delay acceptance for payment of
any tendered units. The offer may be extended indefinitely and no payment will
be made in respect of tendered units until the expiration of the offer and the
acceptance of units for payment.
RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER
FUNDAMENTAL CHANGE IN NATURE OF INVESTMENT. If you tender your units in
exchange for our OP Units, you will have changed fundamentally the nature of
your investment from (i) a partnership that distributes to its partners the
proceeds from a sale of a property or a refinancing of its indebtedness, to (ii)
a partnership that reinvests the proceeds from sales of properties and
refinancings of its indebtedness. You will have changed from a small partnership
with a partnership termination date of December 31, 2013 to a much larger
partnership with a partnership termination date of 2093.
FUNDAMENTAL CHANGE IN NUMBER OF PROPERTIES OWNED. If you tender your units
for our OP Units, you will have changed your investment from an interest in a
partnership that owns and manages one property to an interest in a partnership
that invests in and manages a large portfolio of properties.
LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP
Units. In addition, the AIMCO Operating Partnership's agreement of limited
partnership restricts the transferability of OP Units.
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We have no plans to list the OP Units on a securities exchange. It is unlikely
that any person will make a market in the OP Units, or that an active market for
the OP Units will develop.
UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes
quarterly distributions based on its available cash, there can be no assurance
regarding the amounts of available cash that our operating partnership will
generate or the portion that we will choose to distribute.
POSSIBLE REDUCTION IN REQUIRED DISTRIBUTIONS ON PREFERRED OP UNITS. On and
after March 1, 2005, we may reduce the rate of distributions required to be paid
on the Preferred OP Units, thus reducing the rate of return and possibly
encouraging you to redeem such units.
POSSIBLE REDEMPTION OF PREFERRED STOCK. On and after March 1, 2005, we may
redeem each share of Class I Preferred Stock for $25, plus any accumulated,
accrued and unpaid dividends, possibly forcing you to sell such shares to AIMCO
or to sell in the open market at a possibly lower price per share than would
have occurred without the redemption. If, for example, after five years we
redeemed the Class I Preferred Stock for $25 per share, you will have received
the present value equivalent of the cash consideration of our offer (assuming
annual distributions of $2.00 on each Preferred OP Unit, a discount rate of 8%
and without giving effect to the potential tax deferral associated with
receiving OP Units instead of cash).
POSSIBLE RECOGNITION OF TAXABLE GAINS ON OP UNITS. There are tax risks
associated with the acquisition, retention and disposition of OP Units. Although
your general partner (which is our subsidiary) has no present intention to
liquidate or sell your partnership's property or prepay the current mortgage on
the property within any specified time period, any such action in the future
generally will require you to fully recognize any deferred taxable gain if you
exchange your units for OP Units. See "Federal Income Taxation of the AIMCO
Operating Partnership and OP Unitholders" in the accompanying Prospectus.
LIMITATIONS ON EFFECTING A CHANGE OF CONTROL. Our charter has restrictions
on the ownership of our equity securities in order to comply with certain REIT
tax requirements. The limited partners of the AIMCO Operating Partnership are
unable to remove the general partner of the AIMCO Operating Partnership or to
vote in the election of AIMCO's directors unless they own shares of AIMCO. As a
result, our limited partners and stockholders are limited in their ability to
effect a change of control of the AIMCO Operating Partnership and AIMCO.
LIMITATION ON TRANSFER OF OP UNITS. Investors in our partnership must hold
the OP Units for one year, subject to exceptions. Thereafter transfers may be
made subject to applicable transfer restrictions.
LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating
Partnership is managed and operated by its general partner. Unlike the holders
of common stock in a corporation, holders of OP Units have only limited voting
rights on matters affecting the AIMCO Operating Partnership's business. Holders
of OP Units have no right to elect the general partner on an annual or other
continuing basis, and the general partner may not be removed by holders of
limited partnership interests. As a result, holders of OP Units have limited
influence on matters affecting the operation of the AIMCO Operating Partnership
and third parties may find it difficult to attempt to gain control or influence
the activities of our operating partnership. Such matters affecting the
operation of the AIMCO Operating Partnership include liquidation and
distribution policies, property purchases, and potential mergers or
acquisitions.
MARKET PRICES FOR AIMCO'S SECURITIES MAY FLUCTUATE. We cannot predict the
prices at which our stock will trade in the future. Recently, there have been
fluctuations in the trading prices for many REIT equity securities, including
ours.
LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire
interests in limited partnerships that own apartment properties. In some cases
(such as your partnership), we have acquired the general partner of a
partnership and then made an offer to acquire the limited partners' interests in
the partnership. There is a risk that we will be subject to litigation based on
claims that the general partner has breached its fiduciary duties to its limited
partners or that the transaction violates the relevant partnership agreement. As
a result, we may incur costs associated with defending or settling such
litigation or paying any judgement if we lose. As of the present time, no
limited partners of your partnership have initiated lawsuits on such grounds.
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DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited
number of additional OP Units or other securities for such consideration and on
such terms as we may establish, without the approval of the holders of OP Units.
Such securities could have priority over the OP Units as to cash flow,
distributions and liquidation proceeds. The effect of any such issuance may be
to dilute the interests of holders of OP Units.
RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER
POSSIBLE INCREASE IN CONTROL OF YOUR PARTNERSHIP BY US. As a result of the
offer, we may increase our ability to influence voting decisions with respect to
your partnership. However, we will not be able to control voting decisions
unless we acquire more units in another transaction, which cannot take place for
at least one year after expiration of this offer. Also, removal of your general
partner (which is our subsidiary) or the manager of any property owned by your
partnership may become more difficult or impossible without our consent or
approval.
RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR
PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your
partnership's liabilities is treated, for Federal income tax purposes, as a
deemed cash distribution. Although your general partner (which is our
subsidiary) has no current plan or intention to reduce the liabilities of your
partnership, it is possible that future economic, market, legal, tax or other
considerations may cause your general partner to reduce the liabilities of your
partnership. If the liabilities of your partnership were to be reduced, and you
do not tender all of your units pursuant to our offer, you will be treated as
receiving a hypothetical distribution of cash resulting from a decrease in your
share of the liabilities of your partnership. Any such hypothetical distribution
of cash would be treated as a nontaxable return of capital to the extent of your
adjusted tax basis in your units and thereafter as gain.
POSSIBLE TERMINATION OF YOUR PARTNERSHIP FOR FEDERAL INCOME TAX
PURPOSES. If there is a sale or exchange of 50% or more of the total interest in
capital and profits of your partnership within any 12-month period, including
sales or exchanges resulting from our offer, your partnership will terminate for
Federal income tax purposes. Any such termination may, among other things,
subject the assets of your partnership to longer depreciable lives than those
currently applicable. This would generally decrease the annual average
depreciation deductions allocable to you for a number of years if you do not
tender all of your units (thereby increasing the taxable income allocable to
your units in each such year), but would have no effect on the total
depreciation deductions available over the useful lives of the assets of your
partnership. Any such termination may also change (and possibly shorten) your
holding period with respect to your units that you choose to retain. Gain
recognized by you on the disposition of retained units with a holding period of
12 months or less may be classified as short-term capital gain and subject to
taxation at ordinary income tax rates.
RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's
agreement of limited partnership prohibits any transfer of units without the
consent of your general partner (which is our subsidiary). Such consent may be
withheld by your general partner in its sole discretion. Your general partner
may withhold its consent if such transfer would result in the termination of
your partnership for tax purposes which would occur if 50% or more of the total
interest in your partnership is transferred within a 12-month period. If we
acquire a significant percentage of the interest in your partnership, your
general partner may not consent to a transfer for a 12-month period following
our offer.
POSSIBLE CHANGE IN TIME FRAME REGARDING SALE OF PROPERTY. It is not known
when the property owned by your partnership may be sold. Therefore, there may be
no way to liquidate your investment in the partnership in the future until the
property is sold and your partnership is liquidated. You may continue to have to
hold the units not exchanged in this offer for an indefinite period of time. The
partnership currently owns one property. The general partner of your partnership
continually considers whether the property should be sold or otherwise disposed
of after consideration of relevant factors, including prevailing economic
conditions, availability of favorable financing and tax considerations, with a
view to achieving maximum capital appreciation for your partnership. We cannot
predict when the property will be sold or otherwise disposed of. However, there
is no current plan or intention to sell the property in the near future.
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<PAGE> 11
BALLOON PAYMENTS. Your partnership has approximately $11,872,282 of balloon
payments due on its mortgage debt in November 2003. Your partnership will have
to refinance such debt or sell its property prior to the balloon payment dates,
or it will be in default and could lose the property to foreclosure.
BACKGROUND AND REASONS FOR THE OFFER
Background of the Offer
We are in the business of acquiring direct and indirect interests in
apartment properties such as the property owned by your partnership. Our offer
provides us with an opportunity to increase our ownership interest in your
partnership's property while providing you and other investors with an
opportunity to liquidate your current investment and to invest in our OP Units
or receive cash, or to retain your units.
On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing
so, we acquired a 51% ownership interest in Insignia Properties Trust, which has
a 100% ownership interest in the general partner of your partnership and the
company that manages the property owned by your partnership. On February 26,
1999, we acquired the remaining 49% interest in Insignia Properties Trust in a
merger transaction. One of the consequences of the merger with Insignia is to
allow us to make the offer and, if successful, to increase our ownership in your
partnership.
We contacted Robert A. Stanger & Co., Inc. in August 1998 to discuss the
possibility of Stanger providing an independent fairness opinion for our offer
consideration. We chose Stanger based on Stanger's expertise and strong
reputation in this area of work. On August 28, 1998, we entered into an
agreement with Stanger to provide such a fairness opinion for your partnership
and other partnerships.
Alternatives Considered
The following is a brief discussion of the benefits and disadvantages of
alternatives to our offer that could have been pursued by your general partner
(which is our subsidiary):
Liquidation. One alternative to our offer would be for your partnership
to sell its assets, distribute the net liquidation proceeds to its partners
in accordance with your partnership's agreement of limited partnership, and
then dissolve. Partners would be at liberty to use the net liquidation
proceeds after taxes for investment, business, personal or other purposes,
at their option. If your partnership were to sell its assets and liquidate,
you and your partners would not need to rely upon capitalization of income
or other valuation methods to estimate the fair market value of your
partnership's assets. Instead, such assets would be valued through
negotiations with prospective purchasers. However, a liquidating sale of
your partnership's property would be a taxable event for you and your
partners and could result in significant amounts of taxable income to you
and your partners.
Continuation of Your Partnership Without the Offer. A second alternative
would be for your partnership to continue its business without our offer. A
number of advantages could result from the continued operation of your
partnership. Given improving rental market conditions, the level of
distributions might increase over time. We believe it is possible that the
private resale market for apartment and retail properties could improve
over time, making a sale of your partnership's property in a private
transaction at some point in the future a more viable option than it is
currently. However, there are several risks and disadvantages that result
from continuing the operations of your partnership without the offer. If
your partnership were to continue operating as presently structured, it
could be forced to borrow on terms that could result in net losses from
operations. Your partnership's mortgage notes are due in November 2003 and
require balloon payments of $11,872,282. Your partnership currently has
adequate sources of cash to finance its operations on both a short term and
long term basis but will have to sell its property or refinance its
indebtedness to pay such balloon payment. In addition, continuation of your
partnership without the offer would deny you and your partners the benefits
that your general partner (which is our subsidiary) expects to result from
the offer. For example, a partner of your partnership would have no
opportunity for liquidity unless he were to sell his units in a private
transaction. Any such sale would likely be at a very substantial discount
from the partner's pro rata share
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of the fair market value of your partnership's property. There is currently
no market for the Preferred OP Units or Common OP Units.
Expected Benefits of the Offer
We are in the business of acquiring direct and indirect interests in
apartment properties such as the property owned by your partnership. The offer
provides us with an opportunity to increase our ownership interest in your
partnership's property while providing you and other investors with an
opportunity to retain or liquidate your investment in your partnership for cash
or for units in the AIMCO Operating Partnership.
There are four principal advantages of exchanging your units for Preferred
OP Units:
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Preferred OP Units.
- Enhanced Liquidity After One Year. While holders of the Preferred OP
Units must hold such units for one year, subject to certain exceptions,
after a one-year holding period, you may choose to redeem your Preferred
OP Units and receive, at our option, shares of AIMCO's Class A Common
Stock or cash. After a two-year holding period, if you choose to redeem
your Preferred OP Units, you may receive, at our option, cash, shares of
AIMCO's Class I Preferred Stock or shares of AIMCO's Class A Common
Stock. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred
Stock is expected to be, listed and traded on the NYSE.
- Preferred Quarterly Distributions. Your partnership paid no distributions
for the fiscal year ended December 31, 1998. Holders of Preferred OP
Units will be entitled to receive quarterly distributions of $0.50 per
unit (equivalent to $2.00 on an annualized basis) before any
distributions are paid to holders of Common OP Units. This is equivalent
to a distribution of $8.00 per year on the number of Preferred OP Units
you will receive in exchange for each of your partnership units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
There are five principal advantages of exchanging your units for Common OP
Units:
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Common OP Units.
- Enhanced Liquidity After One Year. While the holders of the Common OP
Units must hold such units for one year, subject to certain exceptions,
after a one-year holding period, you may choose to redeem your Common OP
Units and receive, at our option, shares of AIMCO's Class A Common Stock
(on a one-for-one basis, subject to adjustment in certain circumstances)
or an equivalent amount of cash. AIMCO's Class A Common Stock is listed
and traded on the NYSE.
- Quarterly Distributions. Your partnership paid no distributions for the
fiscal year ended December 31, 1998. In 1998, we paid quarterly
distributions on the Common OP Units totalling $2.25 per unit. In January
1999, we increased our distribution rate on each of the Common OP Units
to $2.50 on an annual basis. See "The AIMCO Operating Partnership."
Assuming no change in the level of our distributions, this is equivalent
to a distribution of $6.88 per year on the number of Common OP Units you
will receive in exchange for each of your partnership units.
- Growth Potential. Our assets, organizational structure and access to
capital enables us to pursue acquisition and development opportunities
that are not available to your partnership. You would have the
opportunity to participate in the growth of our enterprise and would
benefit from any future increase in the AIMCO stock price and from any
future increase in distributions on the Common OP Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
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The principal advantage if you tender your units for cash is immediate
liquidity. However, tendering your units for cash may cause you to recognize
taxable gain for Federal income tax purposes.
Disadvantages of the Offer.
The principal disadvantages of the offer are:
- Lack of Independent Price Determination. We determined the offer price
and the terms of the offer, including the exchange ratio for Common OP
Units and Preferred OP Units, and the terms of the Preferred OP Units and
the Class I Preferred Stock. The terms of the offer and the nature of the
securities could differ if they were subject to independent third party
negotiations. We determined the offering price and asked Stanger to
determine if the price was fair. We did not ask Stanger to determine a
fair price.
- No Separate Representation of Limited Partners. In structuring the offer
and determining the offer consideration, no one separately represented
the interests of the limited partners. Although we have a fiduciary duty
to the limited partners, we also have conflicting responsibilities to our
equity holders. We did not appoint, or ask the limited partners to
appoint, a party to represent only their interests.
- No Proposal to Sell the Property. We are not proposing to try to
liquidate the partnership and sell the partnership's property and
distribute the net proceeds. An arms-length sale of such property after
offering it for sale through licensed real estate brokers might be a
better way to determine the true value of the property rather than the
method we chose. The sale of the property and the liquidation of the
partnership might result in greater pretax cash proceeds to you than our
offer.
- OP Units. OP Units lack a public market, have transfer restrictions and
must be held for one year before they can be redeemed by a holder. The
ultimate return on the OP Units is directly tied to the future price of
AIMCO's Class A Common Stock or Class I Preferred Stock. You could
ultimately receive less for your OP Units than the cash price in our
offer. Further, on or after March 1, 2005, we may redeem the Class I
Preferred Stock for $25 per share.
- Continuation of the Partnership. We are proposing to continue to operate
your partnership and not to attempt to liquidate it at the present time.
Thus, our offer does not satisfy any expectation that you would receive
the return of your investment in the partnership through a sale of the
property at the present time. At the current time we do not believe that
a sale of the property would be advantageous given market conditions, the
condition of the property and tax considerations. In particular, we
considered the changes in the local rental market, the potential for
appreciation in the value of the property and the tax consequences to you
and your partners upon a sale of the property.
- Possible Recognition of Taxable Gain. If you exercise your redemption
right with respect to the OP Units within two years of the date that you
transfer your units to the AIMCO Operating Partnership, your exchange of
units for OP Units and cash could be treated as a disguised sale of your
units and you would be required to recognize gain or loss in the year of
the exchange on such disguised sale. See "Federal Income Tax
Consequences -- Disguised Sales."
For a description of certain risks of our offer, see "Risk Factors."
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VALUATION OF UNITS
We determined the offer consideration by estimating the value of the
property owned by your partnership using the direct capitalization method. This
method involves applying a capitalization rate to your partnership's annual
property income. A capitalization rate is a percentage (rate of return),
commonly applied by purchasers of residential real estate to property income to
determine the present value of income property. The lower the capitalization
rate utilized the higher the value produced, and the higher the capitalization
rate utilized the lower of the value produced. We used your partnership's
property income for the fiscal year ended December 31, 1997. However, in
determining the appropriate capitalization rate, we considered your
partnership's property income since December 31, 1997. Our method for selecting
a capitalization rate begins with each property being assigned a location and
condition rating (e.g., "A" for excellent, "B" for good, "C" for fair, and "D"
for poor). We have rated your property's location B (good) and its condition B
(good). Generally, we assign an initial capitalization rate of 10.25% to
properties in this category. We then adjust the capitalization rate based on
whether the mortgage debt that the property is subject to bears interest at a
rate above or below 7.5% per annum. Generally, for every 0.5% in excess of 7.5%,
the capitalization rate would be increased by 0.25%. Your property's mortgage
debt bears interest at 7.61% per annum, which resulted in an increase from the
initial capitalization rate of 0.25%. We also considered any changes in your
partnership's property income from 1997 to 1998. Because your partnership's
property income in 1998 remained relatively unchanged compared to 1997, we made
no further revision of the capitalization rate, resulting in a final
capitalization rate of 10.50%. The evaluation of a property's location and
condition, and the determination of an appropriate capitalization rate for a
property, is subjective in nature, and others evaluating the same property might
use a different capitalization rate and derive a different property value.
Although the direct capitalization method is a widely-accepted way of valuing
real estate, there are a number of other methods available to value real estate,
each of which may result in different valuations of a property. Further, in
applying the direct capitalization method, others may make different assumptions
and obtain different results. The proceeds that you would receive if you sold
your units to someone else or if your partnership were actually liquidated might
be higher or lower than our offer consideration. We believe that if your
partnership was liquidated there would not be enough value to fully discharge
all known liabilities. We have, however, decided to offer you $100 per unit. We
determined your partnership's value as follows:
<TABLE>
<S> <C>
Property income............................................. $ 1,350,000
Capitalization rate......................................... 10.50%
------------
Gross valuation of partnership property..................... $ 12,858,000
Net Cash Shortfall.......................................... 1,168,575
Plus: Cash and cash equivalents............................. 578,121
Plus: Other partnership assets, net of security deposits.... 45,289
Less: Mortgage debt, including accrued interest............. (13,014,001)
Less: Accounts payable and accrued expenses................. (68,578)
Less: Other liabilities..................................... (26,901)
------------
Partnership valuation before taxes and certain costs........ 1,538,505
Less: Disposition fees...................................... 0
Less: Extraordinary capital expenditures for deferred
maintenance............................................... (1,217,055)
Less: Closing costs......................................... (321,450)
------------
Estimated net valuation of your partnership................. 0
Percentage of estimated net valuation allocated to holders
of units.................................................. n/a
------------
Estimated net valuation of units............................ 0
Total number of units............................. 50.0
------------
Estimated valuation per unit................................ 0
============
Cash consideration per unit................................. $ 100
============
</TABLE>
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In order to determine the number of Preferred OP Units we are offering for
each of your units, we divided the cash offer consideration of $100 by the $25
liquidation preference of each Preferred OP Unit to get 4.00 Preferred OP Units
per unit.
In order to determine the number of Common OP Units we are offering for
each of your units, we divided the cash offer consideration of $100 by a price
of $37.63 (the average closing price of AIMCO's Class A Common Stock on the NYSE
for the 30 trading days ended on March 23, 1999) to get 2.75 Common OP Units per
unit.
FAIRNESS OF THE OFFER
Fairness to Unitholders. Your general partner is our subsidiary. As a
result, your general partner has a conflict of interest and makes no
recommendation to you as to whether you should tender or refrain from tendering
your units. Your general partner did not participate in the structuring of the
offer. We and your general partner believe that the offer and all forms of
consideration offered is fair to you and the other limited partners of your
partnership. We have retained Stanger to conduct an analysis of the offer and to
render an opinion as to the fairness to you of our offer consideration. Stanger
is not affiliated with us or your general partner. Stanger is one of the leaders
in the field of analyzing and evaluating complex real estate transactions.
However, we provided much of the information used by Stanger in forming its
fairness opinion. We believe the information provided to Stanger is accurate in
all material respects. You should make your decision whether to tender based
upon a number of factors, including your financial needs, other financial
opportunities available to you and your tax position.
The terms of our offer have been established by us and are not the result
of arms-length negotiations.
If you choose not to tender any units, your interest in your partnership
will remain unchanged, except that we may own a larger share of the limited
partnership interests in your partnership than we did before the offer. If we
acquire a substantial number of units pursuant to the offer, we may be in a
position to influence voting decisions with respect to your partnership. Your
general partner (which is our subsidiary) has no present intention to liquidate,
sell, finance or refinance your partnership's property within any specified time
period.
Comparison of Offer Price to Other Values. In evaluating the offer, your
general partner (which is our subsidiary) has compared our offer consideration
to:
- your general partner's estimate of the net proceeds that would be
distributed to you and your partners if your partnership was liquidated;
- your general partner's estimate of the going concern value of your
partnership if it continued operating as an independent stand-alone
entity; and
- the net book value of your partnership.
The results of these comparative analyses are summarized as follows:
COMPARISON TABLE
<TABLE>
<CAPTION>
PER UNIT
--------
<S> <C>
Cash offer consideration.................................... $ 100
Partnership Preferred Units................................. $ 100
Partnership Common Units.................................... $ 100
Alternatives:
Estimated liquidation proceeds............................ $ 0
Estimated going concern value(1).......................... $ 0
Estimated alternative going concern value(2).............. 0
Net book value (deficit).................................. $(208,629)
</TABLE>
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- ---------------
(1) Assumes a refinancing of the partnership property's mortgage when it comes
due.
(2) Assumes a sale of the partnership property when the mortgage is due, rather
than a refinancing of the mortgage.
STANGER ANALYSIS
We engaged Stanger to conduct an analysis of our offer and to render its
opinion based on the review, analysis, scope and limitations described therein,
as to the fairness to you of our offer consideration from a financial point of
view. The full text of the opinion, which contains a description of the
assumptions and qualifications made, matters considered and limitations on the
review and analysis, is set forth in Appendix A and should be read in its
entirety. We imposed no conditions or limitations on the scope of Stanger's
investigation or with respect to the methods and procedures to be followed in
arriving at the fairness opinion. We have agreed to indemnify Stanger against
certain liabilities arising out of its engagement to render the fairness
opinion. Based on its analysis, and subject to the assumptions, limitations and
qualifications cited in its opinion, Stanger concluded that our offer
consideration is fair to you from a financial point of view. Stanger has
rendered similar fairness opinions with regard to the other tender offers being
made by the AIMCO Operating Partnership. Stanger rendered the opinions only as
to the individual fairness of the offer consideration in each proposed exchange
offer.
YOUR PARTNERSHIP
Your Partnership and its Property. Ravensworth Associates Limited
Partnership is a Massachusetts limited partnership which was formed on June 21,
1983 for the purpose of owning and operating a single apartment property located
in Annandale, Virginia, known as "Ravensworth Towers Apartments." Your
partnership's property consists of 219 units and was built in 1974. Your
partnership has no employees. As of September 30, 1998, there were 50 units of
limited partnership interest issued and outstanding, which were held of record
by 59 limited partners. Your partnership's principal executive offices are
located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and
its telephone number at that address is (303) 757-8101.
Your partnership sold 380 limited partnership units in 1983. Between
January 1, 1993 and December 31, 1998 your partnership paid no cash
distributions. Your partnership currently owns one property.
Property Management. Your partnership's property has been managed by an
affiliate of ours. Pursuant to the management agreement between the property
manager and your partnership, the property manager operates your partnership's
property, establishes rental policies and rates and directs marketing
activities. The property manager also is responsible for maintenance, the
purchase of equipment and supplies, and the selection and engagement of all
vendors, suppliers and independent contractors.
Investment Objectives and Policies; Sale or Financing of Investments. Under
your partnership's agreement of limited partnership, your partnership is not
permitted to raise new capital or reinvest cash in new properties. Your
partnership will terminate on December 31, 2013, unless earlier dissolved. Your
general partner has no present intention to liquidate, sell, finance or
refinance your partnership property within any specified time period. An
investment in your partnership is a finite life investment in which partners
receive regular cash distributions out of your partnership's distributable cash
flow, if any, and upon liquidation.
Borrowing Policies. Your partnership's agreement of limited partnership
allows your partnership to incur debt. As of December 31, 1998, your partnership
had a mortgage note outstanding of $9,730,882, payable to FNMA, which bears
interest at the rate of 8.38%. The mortgage debt is due in November 2003. Your
partnership also has a second mortgage note outstanding of 2,966,882, on the
same terms as the current mortgage note. Your partnership's agreement of limited
partnership also allows your general partner to lend funds to your partnership.
As of December 31, 1998, your general partner had no outstanding loans to your
partnership.
S-11
<PAGE> 17
Transfers. Your units are not listed on any national securities exchange or
quoted on NASDAQ, and there is no established public trading market for the
units. Secondary sales activity for the units has been limited and sporadic.
Your general partner monitors transfers of the units (i) because the admission
of the transferee as a substitute limited partner in your partnership requires
the consent of your general partner under your partnership agreement, and (ii)
in order to track compliance with applicable safe harbor provisions to avoid
treatment as a "publicly traded partnership" for tax purposes. However, your
general partner does not monitor or regularly receive or maintain information
regarding the prices at which secondary sale transactions in the units have been
effectuated.
TERMS OF THE OFFER
General. We are offering to acquire up to 25% of the outstanding 50 units
of your partnership, which we do not directly or indirectly own, for
consideration per unit of 4.00 Preferred OP Units, 2.75 Common OP Units, or $100
in cash. If you tender units pursuant to the offer, you may choose to receive
any combination of such forms of consideration for your units. The offer is made
upon the terms and subject to the conditions set forth in this Prospectus
Supplement, the accompanying Prospectus and the accompanying Letter of
Transmittal, including the instructions thereto, as the same may be supplemented
or amended from time to time (the "Letter of Transmittal"). To be eligible to
receive Preferred OP Units, Common OP Units or cash pursuant to the offer, you
must validly tender and not withdraw your units on or prior to the Expiration
Date. For administrative purposes, the transfer of units tendered pursuant to
the offer will be deemed to take effect as of January 1, 1999, although you will
be entitled to retain any distributions you may have received after such date
and prior to our commencement of this offer.
If you accept our offer and do not specify the consideration you desire on
the letter of transmittal, we will issue you Preferred OP Units.
Expiration Date. Our offer will expire at 5:00 P.M., New York City time, on
June 4, 1999, unless extended.
Conditions of the Offer. Our offer is not conditioned on the tender of any
minimum number of units. However, our offer is conditioned on a number of other
factors.
Procedures for Tendering. If you desire to accept our offer, you must
complete and sign the Letter of Transmittal in accordance with the instructions
contained therein and forward or hand deliver it, together with any other
required documents, to the Information Agent.
Proration. If the number of units properly tendered and not withdrawn prior
to the Expiration Date exceeds 25% of the outstanding units, upon the terms and
subject to the conditions of the offer, we will accept all units properly
tendered and not withdrawn prior to the expiration date on a pro rata basis. In
the event that proration of tendered units is required, we will determine the
final proration factor as promptly as practicable after the expiration date.
Withdrawal Rights. You may withdraw your tender of units pursuant to the
offer at any time prior to their acceptance as provided for herein.
Purpose of the Offer. The purpose of our offer is to provide us with an
opportunity to increase our investment in apartment properties, and provide you
and your partners with an opportunity to liquidate your current investment and
to invest in our operating partnership or receive cash, or to retain your units.
Fractional OP Units. We will issue fractional Common OP Units or Preferred
OP Units, if necessary.
Delivery of OP Units and Cash. We will deliver OP Units and cash as soon as
practicable after acceptance of units for purchase.
Extension; Termination; Amendment. We expressly reserve the right, in our
sole discretion, at any time and from time to time, to:
- extend the period of time during which the offer is open and thereby
delay acceptance of, and payment for, any tendered units;
S-12
<PAGE> 18
- terminate the offer and not accept for payment any units not theretofore
accepted for payment or paid for;
- upon the failure to satisfy any of the conditions to the offer, delay the
acceptance of, or payment for, any units not already accepted for payment
or paid for; and
- amend the offer in any respect (subject to applicable rules regarding
tender offers), including the nature and form of consideration.
The offer may be extended or delayed indefinitely, during which time you
will not receive payment for any tendered units.
Effects of the Offer. As a result of the offer, we, in our capacity as a
limited partner of your partnership, will participate in any subsequent
distributions to limited partners, to the extent of units we purchase pursuant
to the offer. The offer will not affect the operation of any property owned by
your partnership's because your general partner (which is our subsidiary) and
the property manager will remain unchanged. If we borrow funds for the cash
consideration for these offers, our interest costs would increase which could
adversely affect our future earnings. If all units in this and our other
contemplated offers were purchased for cash and we borrowed all the funds, at
current interest rates, our interest expense would increase by $3,064,000 per
year.
Voting by the AIMCO Operating Partnership. If we acquire a substantial
number of units pursuant to our offer, we may be in a position to influence or
control voting decisions with respect to your partnership. However, we will not
be able to control voting decisions unless we acquire more units in another
transaction, which cannot take place for at least one year after expiration of
this offer.
Future Plans for Your Partnership. We currently intend that, upon
consummation of the offer, your partnership will continue its business and
operations substantially as they are currently being conducted. We do not have
any present plans or proposals which relate to or would result in any material
changes in your partnership's structure or business. We have no present
intention to cause your partnership to sell its property or to prepay the
current mortgage within any specified time period.
Certain Legal Matters. Except as set forth in this section, we are not,
based on information provided by your general partner (which is our subsidiary),
aware of any licenses or regulatory permits that would be material to the
business of your partnership, and that might be adversely affected by our
acquisition of units as contemplated herein. On the same basis, we are not aware
of any filings, approvals or other actions by or with any domestic or foreign
governmental authority or administrative or regulatory agency that would be
required prior to our acquisition of units pursuant to the offer as contemplated
herein that have not been made or obtained. We are not aware of any jurisdiction
in which the making of the offer is not in compliance with applicable law. If we
become aware of any jurisdiction in which the making of the offer would not be
in compliance with applicable law, we will make a good faith effort to comply
with any such law.
Fees and Expenses. We will not pay any fees or commissions to any broker,
dealer or other person for soliciting tenders of units pursuant to the offer. We
will pay the Information Agent reasonable and customary compensation for its
services in connection with the offer, plus reimbursement for out-of-pocket
expenses. We will indemnify the Information Agent against certain liabilities
and expenses in connection therewith, including liabilities under the Federal
securities laws. We will pay all costs and expenses of printing and mailing this
Prospectus Supplement and the accompanying Prospectus and Letter of Transmittal,
and the legal and accounting fees and expenses in connection with the offer. We
will also pay the fees of Stanger for providing the fairness opinion for the
offer. We estimate that our total costs and expenses in making the offer
(excluding the purchase price of the units payable to you and your partners)
will be approximately $50,000.
Accounting Treatment. Upon consummation of the offer, we will account for
our investment in any acquired units under the purchase method of accounting.
There will be no effect on the accounting treatment of your partnership as a
result of the offer.
No Dissenters' Rights. You are not entitled to dissenters' (appraisal)
rights in connection with the offer.
S-13
<PAGE> 19
Other Offers. The AIMCO Operating Partnership is also making similar
exchange offers to approximately 90 other limited partnerships in which it
controls the general partner, interests in substantially all of which were
acquired in the merger on October 1, 1998 with Insignia Financial Group, Inc.
and the February 26, 1999 merger with Insignia Properties Trust. Each of such
exchange offers is being made by a separate prospectus supplement which is
similar to this Prospectus Supplement. Copies of such prospectus supplements may
be obtained upon written request from the Information Agent at the address set
forth in "-- Information Agent" or on the back cover page of this Prospectus
Supplement. The exchange offers may be different for limited partners in each
partnership in terms of pricing and percentage of units sought, but the effects
of the offers will essentially be the same. In general, we believe that the risk
factors (except for certain tax-related risk factors) described herein for this
offer will also be applicable to the other offers.
Information Agent. River Oaks Partnership Services, Inc. is serving as
Information Agent in connection with the offer. Its telephone numbers are (888)
349-2005 and (201) 896-1900. Its fax number is (201) 896-0910.
FEDERAL INCOME TAX CONSEQUENCES
You will generally not recognize any immediate taxable gain or loss for
Federal income tax purposes if you exchange your units solely for Preferred OP
Units or Common OP Units. You will recognize a gain or loss for Federal income
tax purposes on units you sell for cash. The exchange of your units for cash and
OP Units will be treated, for Federal income tax purposes, as a partial sale of
such units for cash and as a partial tax-free contribution of such units to our
operating partnership.
THE FOREGOING SUMMARY IS A GENERAL DISCUSSION OF THE MATERIAL FEDERAL
INCOME TAX CONSEQUENCES OF TENDERING UNITS IN THE OFFER. THIS SUMMARY DOES NOT
DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN
LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT
UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER
TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU
SHOULD REVIEW "FEDERAL INCOME TAX CONSEQUENCES" IN THIS PROSPECTUS SUPPLEMENT
AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME
TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX
CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A
FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER.
COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP
There are a number of significant differences between your partnership and
the AIMCO Operating Partnership relating to, among other things, form of
organization, permitted investments, policies and restrictions, management
structure, compensation and fees, and investor rights. For example, your general
partner (which is our subsidiary) may be removed by the limited partners while
the limited partners of the AIMCO Operating Partnership cannot remove the
general partner. Also, your partnership is limited as to the number of limited
partner interests it may issue while the AIMCO Operating Partnership has no such
limitation.
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS
There are a number of significant differences between your units, Preferred
OP Units and Common OP Units relating to, among other things, the nature of the
investment, voting rights, distributions and liquidity and
transferability/redemption. For example, unlike the AIMCO OP Units, you have no
redemption rights with respect to your units.
As of February 19, 1999, the AIMCO Operating Partnership had approximately
9,729,130 Common OP Units outstanding (excluding interests held by AIMCO) and no
Class Two Partnership Preferred Units outstanding. The number of OP Units you
may acquire from us in exchange for your units will represent a lower percentage
of the outstanding limited partnership interests in the AIMCO Operating
Partnership than that of your current ownership interest in your partnership. In
response to our offer, you could elect to receive $100 in cash, 4.00 Preferred
OP Units or 2.75 Common OP Units. Both your units and the OP Units are
S-14
<PAGE> 20
subject to transfer restrictions and it is unlikely that a real trading market
will ever develop for any of such securities. If you subsequently redeem OP
Units for AIMCO Class A Common Stock or Class I Preferred Stock, we can make no
assurance as to the value of such shares of AIMCO stock, at that time, which may
be less than the cash offer price of $100.
CONFLICTS OF INTEREST
Conflicts of Interest with Respect to the Offer. Your general partner is
our subsidiary and, therefore, has substantial conflicts of interest with
respect to the offer, including (i) the fact that replacement of your general
partner could result in a decrease or elimination of the management fees paid to
an affiliate for managing your partnership's property and (ii) our desire to
purchase units at a low price and your desire to sell units at a high price.
Your general partner makes no recommendation as to whether you should tender or
refrain from tendering your units.
Conflicts of Interest that Currently Exist for Your Partnership. We own
both the general partner of your partnership and the manager of your
partnership's property. The general partner does not receive an annual
management fee but may receive reimbursements for expenses incurred in its
capacity as general partner. The general partner of your partnership received
total fees and reimbursements of $24,155 for the fiscal year ended December 31,
1998. The property manager received management fees of $118,622 for the fiscal
year ended December 31, 1998. We have no current intention of changing the fee
structure for your general partner or the property manager.
Competition Among Properties. Your partnership's property and other
properties owned or managed by us may compete with one another for tenants.
However, in some cases it may be difficult to determine precisely the confines
of the market area for particular properties and some competition may exist.
Furthermore, you should bear in mind that we anticipate acquiring properties in
general market areas where your partnership's property is located. It is
believed that this concentration of properties in a general market area will
facilitate overall operations through collective advertising efforts, staffing
and other operational efficiencies. In managing our properties, we will attempt
to reduce such conflicts between competing properties by referring prospective
tenants to the property considered to be most conveniently located for the
tenants' needs.
Features Discouraging Potential Takeovers. Certain provisions of our
governing documents, as well as statutory provisions under certain state laws,
could be used by our management to delay, discourage or thwart efforts of third
parties to acquire control of us, or a significant equity interest in us.
AIMCO's Charter limits ownership of its common stock by any single shareholder
to 8.7% of the outstanding shares (or 15% in the case of certain pension trusts,
registered investment companies and AIMCO's Chairman, Terry Considine). The 8.7%
ownership limit may have the effect of precluding acquisition of control of us
by a third party without the consent of our Board of Directors. Under AIMCO's
Charter, the Board of Directors has the authority to classify and reclassify any
of its unissued shares of capital stock into shares of preferred stock with such
preferences, rights, powers and restrictions as the Board of Directors may
determine. The authorization and issuance of preferred stock could have the
effect of delaying or preventing someone from taking control of us, even if a
change in control were in our shareholders' best interests. As a Maryland
corporation, AIMCO is subject to various Maryland laws which may have the effect
of discouraging offers to acquire us and of increasing the difficulty of
consummating any such offers, even if our acquisition would be in our
shareholders' best interests. The Maryland General Corporation Law restricts
mergers and other business combination transactions between us and any person
who acquires beneficial ownership of shares of our stock representing 10% or
more of the voting power without our Board of Directors' prior approval. Any
such business combination transaction could not be completed until five years
after the person acquired such voting power, and only with the approval of
shareholders representing 80% of all votes entitled to be cast and 66% of the
votes entitled to be cast, excluding the interested shareholder. Maryland law
also provides that a person who acquires shares of our stock that represent 20%
or more of the voting power in electing directors will have no voting rights
unless approved by a vote of two-thirds of the shares eligible to vote.
S-15
<PAGE> 21
Future Exchange Offers. Although we have no current plans to conduct
further exchange offers for your units, our plans may change based on future
circumstances. Any such future offers that we might make could be for
consideration that is more or less than the consideration we are currently
offering. We might pay a higher price for any future exchange offers we may make
for units of your partnership. In any event, we will not acquire any units for
at least one year after expiration of this offer.
SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES
We expect that approximately $1,250 will be required to purchase all of the
units sought in our offer, if such units are tendered for cash excluding
expenses. We will obtain all such funds from cash from operations, equity
issuances and short term borrowings. For a detailed description of estimated
expenses to be incurred in the offer, see "Source and Amount of Funds and
Transactional Expenses."
S-16
<PAGE> 22
SUMMARY FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P.
The historical summary financial data for AIMCO Properties, L.P. for the
nine months ended September 30, 1998 and 1997 is unaudited. The historical
summary financial data for AIMCO Properties, L.P. for the years ended December
31, 1997, 1996 and 1995 and for the AIMCO Properties, L.P. Predecessors for the
period January 10, 1994 through July 28, 1994, and the year ended December 31,
1993, is based on audited financial statements. This information should be read
in conjunction with such financial statements, including the notes thereto, and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of the AIMCO Operating Partnership" included in the accompanying
Prospectus. All dollar values are in thousands, except per unit data.
<TABLE>
<CAPTION>
AIMCO PROPERTIES, L.P.
-------------------------------------------------------------------------
FOR THE
PERIOD
JULY 29,
FOR THE NINE MONTHS FOR THE YEAR ENDED 1994
ENDED SEPTEMBER 30, DECEMBER 31, THROUGH
----------------------- -------------------------------- DECEMBER 31,
1998 1997 1997 1996 1995 1994
---------- ---------- ---------- -------- -------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
RENTAL PROPERTY OPERATIONS:
Rental and other income............... $ 265,700 $ 127,083 $ 193,006 $100,516 $ 74,947 $ 24,894
Property operating expenses........... (101,600) (50,737) (76,168) (38,400) (30,150) (10,330)
Owned property management expenses.... (7,746) (4,344) (6,620) (2,746) (2,276) (711)
Depreciation.......................... (59,792) (23,848) (37,741) (19,556) (15,038) (4,727)
---------- ---------- ---------- -------- -------- ---------
96,562 48,154 72,477 39,814 27,483 9,126
---------- ---------- ---------- -------- -------- ---------
SERVICE COMPANY BUSINESS:
Management fees and other income...... 13,968 9,173 13,937 8,367 8,132 3,217
Management and other expenses......... (8,101) (5,029) (9,910) (5,352) (4,953) (2,047)
Corporate overhead allocation......... (196) (441) (588) (590) (581) --
Other assets, depreciation and
amortization........................ (3) (236) (453) (218) (168) (150)
Owner and seller bonuses.............. -- -- -- -- -- --
Amortization of management company
goodwill............................ -- -- (948) (500) (428) --
---------- ---------- ---------- -------- -------- ---------
5,668 3,467 2,038 1,707 2,002 1,020
Minority interests in service company
business............................ -- 48 (10) 10 (29) (14)
---------- ---------- ---------- -------- -------- ---------
Company's shares of income from
service company business............ 5,668 3,515 2,028 1,717 1,973 1,006
---------- ---------- ---------- -------- -------- ---------
General and administrative expenses... (7,444) (1,408) (5,396) (1,512) (1,804) (977)
Interest income....................... 18,244 4,458 8,676 523 658 123
Interest expense...................... (56,756) (33,359) (51,385) (24,802) (13,322) (1,576)
Minority interest in other
partnerships........................ (1,052) (777) 1,008 (111) -- --
Equity in losses of unconsolidated
partnerships(c)..................... (5,078) (463) (1,798) -- -- --
Equity in earnings of unconsolidated
subsidiaries(d)..................... 8,413 456 4,636 -- -- --
Amortization of goodwill.............. (5,071) (711) -- -- -- --
---------- ---------- ---------- -------- -------- ---------
Income from operations................ 53,486 19,865 30,246 15,629 14,988 7,702
Gain on disposition of properties..... 2,783 (169) 2,720 44 -- --
Provision for income taxes............ -- -- -- -- -- --
---------- ---------- ---------- -------- -------- ---------
Income (loss) before extraordinary
item................................ 56,269 19,696 32,966 15,673 14,988 7,702
Extraordinary item -- early
extinguishment of debt.............. -- (269) (269) -- -- --
---------- ---------- ---------- -------- -------- ---------
Net income (loss)..................... $ 56,269 $ 19,427 $ 32,697 $ 15,673 $ 14,988 $ 7,702
========== ========== ========== ======== ======== =========
OTHER INFORMATION:
Total owned properties (end of
period)............................. 241 109 147 94 56 48
Total owned apartment units (end of
period)............................. 62,955 28,773 40,039 23,764 14,453 12,513
Units under management (end of
period)............................. 154,729 71,038 69,587 19,045 19,594 20,758
Basic earnings per Common OP Unit..... $ 0.80 $ 0.53 $ 1.09 $ 1.05 $ 0.86 $ 0.42
Diluted earnings per Common OP Unit... $ 0.79 $ 0.53 $ 1.08 $ 1.04 $ 0.86 $ 0.42
Distributions paid per Common OP
Unit................................ $ 1.6875 $ 1.3875 $ 1.85 $ 1.70 $ 1.66 $ 0.29
Cash flows provided by operating
activities.......................... 50,825 53,435 73,032 38,806 25,911 16,825
Cash flows used in investing
activities.......................... (185,453) (314,814) (717,663) (88,144) (60,821) (186,481)
Cash flows provided by (used in)
financing activities................ 141,221 293,984 668,549 60,129 30,145 176,800
<CAPTION>
AIMCO PROPERTIES, L.P.
PREDECESSORS(A)
--------------------------
FOR THE
PERIOD
JANUARY 10,
1994 FOR THE YEAR
THROUGH ENDED
JULY 28, DECEMBER 31,
1994(B) 1993
----------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C>
OPERATING DATA:
RENTAL PROPERTY OPERATIONS:
Rental and other income............... $ 5,805 $ 8,056
Property operating expenses........... (2,263) (3,200)
Owned property management expenses.... -- --
Depreciation.......................... (1,151) (1,702)
------- --------
2,391 3,154
------- --------
SERVICE COMPANY BUSINESS:
Management fees and other income...... 6,533 8,069
Management and other expenses......... (5,823) (6,414)
Corporate overhead allocation......... -- --
Other assets, depreciation and
amortization........................ (146) (204)
Owner and seller bonuses.............. (204) (468)
Amortization of management company
goodwill............................ -- --
------- --------
360 983
Minority interests in service company
business............................ -- --
------- --------
Company's shares of income from
service company business............ 360 983
------- --------
General and administrative expenses... -- --
Interest income....................... -- --
Interest expense...................... (4,214) (3,510)
Minority interest in other
partnerships........................ -- --
Equity in losses of unconsolidated
partnerships(c)..................... -- --
Equity in earnings of unconsolidated
subsidiaries(d)..................... -- --
Amortization of goodwill.............. -- --
------- --------
Income from operations................ (1,463) 627
Gain on disposition of properties..... -- --
Provision for income taxes............ (36) (336)
------- --------
Income (loss) before extraordinary
item................................ (1,499) 291
Extraordinary item -- early
extinguishment of debt.............. -- --
------- --------
Net income (loss)..................... $(1,499) $ 291
======= ========
OTHER INFORMATION:
Total owned properties (end of
period)............................. 4 4
Total owned apartment units (end of
period)............................. 1,711 1,711
Units under management (end of
period)............................. 29,343 28,422
Basic earnings per Common OP Unit..... N/A N/A
Diluted earnings per Common OP Unit... N/A N/A
Distributions paid per Common OP
Unit................................ N/A N/A
Cash flows provided by operating
activities.......................... 2,678 2,203
Cash flows used in investing
activities.......................... (924) (16,352)
Cash flows provided by (used in)
financing activities................ (1,032) 14,114
</TABLE>
S-17
<PAGE> 23
<TABLE>
<CAPTION>
AIMCO PROPERTIES, L.P.
-------------------------------------------------------------------------
FOR THE
PERIOD
JULY 29,
FOR THE NINE MONTHS FOR THE YEAR ENDED 1994
ENDED SEPTEMBER 30, DECEMBER 31, THROUGH
----------------------- -------------------------------- DECEMBER 31,
1998 1997 1997 1996 1995 1994
---------- ---------- ---------- -------- -------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C> <C> <C> <C> <C>
Funds from operations(e)................ $ 132,881 $ 49,692 $ 81,155 $ 35,185 $ 25,285 $ 9,391
Weighted average number of Common OP
Units outstanding..................... 53,007 24,347 29,119 14,994 11,461 10,920
BALANCE SHEET INFORMATION:
Real estate, before accumulated
depreciation.......................... $2,685,487 $1,250,239 $1,657,207 $865,222 $477,162 $ 406,067
Real estate, net of accumulated
depreciation.......................... 2,355,122 1,107,545 1,503,922 745,145 448,425 392,368
Total assets............................ 3,121,949 1,608,195 2,100,510 827,673 480,361 416,361
Total mortgages and notes payable....... 1,275,401 661,715 808,530 522,146 268,692 141,315
Redeemable Partnership Units............ 232,405 178,321 197,086 96,064 38,463 32,047
Mandatorily redeemable 1994 Cumulative
Senior Preferred Units................ -- -- -- -- -- 107,228
Partners' Capital....................... 1,427,087 560,737 960,176 178,462 160,947 137,354
<CAPTION>
AIMCO PROPERTIES, L.P.
PREDECESSORS(A)
--------------------------
FOR THE
PERIOD
JANUARY 10,
1994 FOR THE YEAR
THROUGH ENDED
JULY 28, DECEMBER 31,
1994(B) 1993
----------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C>
Funds from operations(e)................ N/A N/A
Weighted average number of Common OP
Units outstanding..................... N/A N/A
BALANCE SHEET INFORMATION:
Real estate, before accumulated
depreciation.......................... $47,500 $ 46,819
Real estate, net of accumulated
depreciation.......................... 33,270 33,701
Total assets............................ 39,042 38,914
Total mortgages and notes payable....... 40,873 41,893
Redeemable Partnership Units............ -- --
Mandatorily redeemable 1994 Cumulative
Senior Preferred Units................ -- --
Partners' Capital....................... (9,345) (7,556)
</TABLE>
- ---------------
(a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000
shares of AIMCO Class A Common Stock and issued 966,000 shares of
convertible preferred stock and 513,514 unregistered shares of AIMCO Common
Stock. The proceeds from the offering and such other issuances were
contributed by AIMCO to AIMCO Properties, L.P. for 9,075,000 OP Units,
966,000 Preferred Units and 513,514 Common OP Units, respectively. On such
date, AIMCO Properties, L.P. and its predecessors engaged in a business
combination and consummated a series of related transactions which enabled
AIMCO Properties, L.P. to continue and expand the property management and
related businesses of its predecessors. The 966,000 shares of convertible
preferred stock and 513,514 shares of AIMCO Class A Common Stock that were
issued concurrently with the initial public offering were repurchased in
1995.
(b) Represents the period January 10, 1994 through July 28, 1994, the date of
the completion of the business combination with AIMCO Properties, L.P.
(c) Represents AIMCO Properties, L.P.'s share of earnings from partnerships
that own 83,431 apartment units in which partnerships AIMCO Properties,
L.P. purchased an equity interest from the NHP Real Estate Companies.
(d) Represents AIMCO Properties, L.P. equity earnings in unconsolidated
subsidiaries.
(e) AIMCO Properties, L.P.'s management believes that the presentation of funds
from operations or "FFO", when considered with the financial data
determined in accordance with GAAP, provides a useful measure of
performance. However, FFO does not represent cash flow and is not
necessarily indicative of cash flow or liquidity available to AIMCO
Properties, L.P., nor should it be considered as an alternative to net
income as an indicator of operating performance. The Board of Governors of
NAREIT defines FFO as net income (loss), computed in accordance with GAAP,
excluding gains and losses from debt restructuring and sales of property,
plus real estate related depreciation and amortization (excluding
amortization of financing costs), and after adjustments for unconsolidated
partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO
based on the NAREIT definition, as adjusted for the amortization of
management company goodwill, the non-cash deferred portion of the income
tax provision for unconsolidated subsidiaries and less the payments of
dividends on perpetual preferred stock. AIMCO Properties, L.P. management
believes that presentation of FFO provides investors with industry-accepted
measurements which help facilitate an understanding of its ability to make
required dividend payments, capital expenditures and principal payments on
its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of
computing FFO is comparable with that of other REITs.
The following is a reconciliation of net income to funds from operations:
<TABLE>
<CAPTION>
FOR THE
FOR THE NINE PERIOD
MONTHS ENDED FOR THE YEAR ENDED JANUARY 10,
SEPTEMBER 30, DECEMBER 31, 1994
------------------ --------------------------- THROUGH
1998 1997 1997 1996 1995 JULY 28, 1994
-------- ------- ------- ------- ------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net income.................................................. $ 56,269 $19,427 $32,697 $15,673 $14,988 $ 7,702
(Gain) loss on disposition of property...................... (2,783) 169 (2,720) (44) -- --
Extraordinary item.......................................... -- 269 269 -- -- --
Real estate depreciation, net of minority interests......... 56,900 21,052 33,751 19,056 15,038 4,727
Amortization of goodwill.................................... 7,077 711 948 500 428 76
Equity in earnings of unconsolidated subsidiaries:
Real estate depreciation.................................. -- 2,689 3,584 -- -- --
Amortization of management contracts...................... 4,201 430 1,587 -- -- --
Deferred taxes............................................ 6,134 2,164 4,894 -- -- --
Equity in earnings of other partnerships:
Real estate depreciation.................................. 17,379 2,781 6,280 -- -- --
Preferred stock dividends................................. (12,296) -- (135) -- (5,169) (3,114)
-------- ------- ------- ------- ------- -------
Funds from operations....................................... $132,881 $49,692 $81,155 $35,185 $25,285 $ 9,391
======== ======= ======= ======= ======= =======
</TABLE>
S-18
<PAGE> 24
SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION OF AIMCO PROPERTIES, L.P.
The following table sets forth summary pro forma financial and operating
information of AIMCO Properties, L.P. (the AIMCO Operating Partnership) for the
nine months ended September 30, 1998 and for the year ended December 31, 1997.
The pro forma financial and operating information gives effect to AIMCO's merger
with Insignia Financial Group, Inc., the transfer of certain assets and
liabilities of Insignia to unconsolidated subsidiaries, a number of transactions
completed before the Insignia merger, and a number of exchange offers proposed
to be made to limited partnerships formerly controlled or managed by Insignia,
including your partnership.
<TABLE>
<CAPTION>
AIMCO PROPERTIES, L.P.
----------------------------
FOR THE NINE
MONTHS FOR THE
ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
(IN THOUSANDS, EXCEPT
PER UNIT DATA)
<S> <C> <C>
OPERATING DATA:
RENTAL PROPERTY OPERATIONS:
Rental and other income................................... $ 345,961 $ 442,526
Property operating expenses............................... (136,240) (189,442)
Owned property management expenses........................ (8,933) (11,831)
Depreciation.............................................. (80,420) (98,853)
--------- -----------
120,368 142,400
--------- -----------
SERVICE COMPANY BUSINESS:
Management fees and other income.......................... 28,912 41,676
Management and other expenses............................. (14,386) (23,683)
Corporate overhead allocation............................. (196) (588)
Depreciation and amortization............................. (15,243) (26,480)
--------- -----------
(913) (9,075)
Minority interests in service company business............ -- (10)
--------- -----------
Partnership's shares of income from service company
business............................................... (913) (9,085)
--------- -----------
General and administrative expenses....................... (8,632) (21,371)
Interest expense.......................................... (90,890) (121,699)
Interest income........................................... 40,887 21,734
Minority interest......................................... (8,548) (10,034)
Equity in losses of unconsolidated partnerships........... (23,349) (43,918)
Equity in earnings of unconsolidated subsidiaries......... 851 5,848
Amortization of Goodwill.................................. (5,071) --
--------- -----------
Net income........................................ $ 24,703 $ (36,125)
========= ===========
PER OP UNIT DATA:
Basic earnings (loss) per Common OP Unit.................... $ (.12) $ (1.16)
Diluted earnings (loss) per Common OP Unit.................. $ (.12) $ (1.16)
Distributions paid per Common OP Unit....................... $ 1.69 $ 1.85
Book value per Common OP Unit............................... $ 24.52 $ 26.96
CASH FLOW DATA:
Cash provided by operating activities....................... $ 90,439 $ 130,703
Cash used in investing activities........................... (79,923) (1,135,038)
Cash provided by (used in) financing activities............. 16,740 955,977
OTHER DATA:
Funds from operations(a).................................... $ 187,985 $ 172,733
Weighted average number of Common OP Units outstanding...... 74,946 74,094
</TABLE>
S-19
<PAGE> 25
<TABLE>
<CAPTION>
AIMCO PROPERTIES, L.P.
----------------------
FOR THE NINE
MONTHS ENDED
SEPTEMBER 30, 1998
----------------------
(IN THOUSANDS, EXCEPT
PER UNIT DATA)
<S> <C>
BALANCE SHEET DATA:
Real estate, net of accumulated depreciation................ $2,679,195
Total assets................................................ 4,558,819
Total mortgages and notes payable........................... 1,762,105
Company-obligated mandatorily redeemable convertible
securities of a subsidiary trust.......................... 149,500
Redeemable partnership units................................ 320,443
Partners' capital........................................... 1,984,019
</TABLE>
- ---------------
(a) AIMCO Properties, L.P.'s management believes that the presentation of funds
from operations or "FFO," when considered with the financial data
determined in accordance with GAAP, provides useful measures of AIMCO
Properties, L.P. performance. However, FFO does not represent cash flow and
is not necessarily indicative of cash flow or liquidity available to AIMCO
Properties, L.P., nor should it be considered as an alternative to net
income as an indicator of operating performance. The Board of Governors of
NAREIT defines FFO as net income (loss), computed in accordance with GAAP,
excluding gains and losses from debt restructuring and sales of property,
plus real estate related depreciation and amortization (excluding
amortization of financing costs), and after adjustments for unconsolidated
partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO
based upon the NAREIT definition, as adjusted for the amortization of
management company goodwill, the non-cash deferred portion of the income
tax provision for unconsolidated subsidiaries and less the payments of
dividends on perpetual preferred stock. AIMCO Properties, L.P. management
believes that presentation of FFO provides investors with an industry
accepted measurement which helps facilitate an understanding of AIMCO
Properties, L.P.'s ability to make required dividend payments, capital
expenditures and principal payments on its debt. There can be no assurance
that AIMCO Properties, L.P.'s basis of computing FFO is comparable with
that of other REITs.
The following is a reconciliation of pro forma net income to pro forma
funds from operations:
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS ENDED FOR THE YEAR ENDED
SEPTEMBER 30, 1998 DECEMBER 31, 1997
------------------ ------------------
(IN THOUSANDS)
<S> <C> <C>
Net income (loss)................................. $ 24,703 $(36,125)
HUD release fee and legal reserve................. -- 10,202
Real estate depreciation, net of minority
interests....................................... 76,521 93,050
Amortization of management contracts.............. 9,593 12,790
Amortization of management company goodwill....... 10,997 12,551
Equity in earnings of unconsolidated subsidiaries:
Real estate depreciation........................ -- 1,715
Amortization of management company goodwill..... 959 1,918
Amortization of management contracts............ 23,010 30,516
Deferred taxes.................................. (713) (1,356)
Equity in earnings of other partnerships:
Real estate depreciation........................ 79,559 95,285
Interest on convertible debentures................ (7,537) (10,003)
Preferred unit distributions...................... (29,107) (37,810)
-------- --------
Funds from operations............................. $187,985 $172,733
======== ========
</TABLE>
S-20
<PAGE> 26
SUMMARY FINANCIAL INFORMATION OF RAVENSWORTH ASSOCIATES LIMITED PARTNERSHIP
The summary financial information of Ravensworth Associates Limited
Partnership for the nine months ended September 30, 1998 and 1997 is unaudited.
The summary financial information for Ravensworth Associates Limited Partnership
for the years ended December 31, 1997 and 1996 is based on audited financial
statements. This information should be read in conjunction with such financial
statements, including the notes thereto, and "Management's Discussion and
Analysis of Financial Condition and Results of Operations of Your Partnership"
included herein. See "Index to Financial Statements."
RAVENSWORTH ASSOCIATES LIMITED PARTNERSHIP
<TABLE>
<CAPTION>
FOR THE NINE MONTHS FOR THE YEAR ENDED
ENDED SEPTEMBER 30, DECEMBER 31,
----------------------- -----------------------
1998 1997 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
OPERATING DATA:
Total Revenues............................................ $1,737,515 $1,742,153 $2,330,706 $2,259,496
Net Income/(Loss)......................................... (240,765) (129,694) (195,841) (459,578)
Net Income per limited partnership unit................... (4,815) (2,594) (3,917) (9,192)
Distributions per limited partnership unit................ -- -- -- --
Distributions per limited partnership unit (which
represent a return of capital).......................... -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------------------- -------------------------
1998 1997 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and Cash Equivalents................................. $ 485,939 $ 536,753 $ 578,121 $ 547,609
Real Estate, Net of Accumulated Depreciation.............. 6,724,975 6,958,126 6,851,703 7,137,802
Total Assets.............................................. 7,556,993 7,872,446 7,777,284 8,086,742
Notes Payable............................................. 12,832,583 12,964,814 12,932,783 13,056,992
----------- ----------- ----------- -----------
Partners' Deficit........................................... $(5,574,962) $(5,268,050) $(5,334,197) $(5,138,356)
Total Distributions......................................... $ -- $ -- $ -- $ --
Net increase (decrease) in cash and cash equivalents........ $ (121,803) $ (41,452) $ 30,512 $ (331,578)
Net cash provided by operating activities................... $ 216,491 $ 237,514 $ 354,105 $(1,842,603)
</TABLE>
COMPARATIVE PER UNIT DATA
Set forth below are historical cash distributions per unit of your
partnership for the year ended December 31, 1998, and the cash distributions
payable on the number of Common OP Units and Preferred OP Units issuable in
exchange therefor:
<TABLE>
<CAPTION>
ANNUAL
DISTRIBUTIONS
-------------
<S> <C>
Units of Ravensworth Associates Limited Partnership......... $ 0
Equivalent cash distributions on Common OP Units(1)......... $6.88(1)
Equivalent cash distributions on Preferred OP Units(2)...... $8.00(2)
</TABLE>
- ---------------
(1) Calculated by multiplying the exchange ratio of 2.75 Common OP Units per
unit by the annualized distributions paid on the Common OP Units of $2.50
per unit.
(2) Calculated by multiplying the exchange ratio of 4.00 Preferred OP Units per
unit by the stated annual distribution rate on the Preferred OP Units of
$2.00 per unit.
S-21
<PAGE> 27
THE AIMCO OPERATING PARTNERSHIP
AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts
substantially all of the operations of AIMCO. AIMCO is a real estate investment
trust that owns and manages multifamily apartment properties throughout the
United States. Through its wholly owned subsidiaries, AIMCO GP, the sole general
partner of the AIMCO Operating Partnership, and the Special Limited Partner, as
of December 31, 1998, AIMCO held approximately an 83% interest in the AIMCO
Operating Partnership. Based on apartment unit data compiled by the National
Multi Housing Council, we believe that AIMCO is one of the largest owner and
manager of multifamily apartment properties in the United States, with a total
portfolio of 379,363 apartment units in 2,147 properties located in 49 states,
the District of Columbia and Puerto Rico. As of December 31, 1998, AIMCO:
- owned or controlled 63,086 units in 242 apartment properties;
- held an equity interest in 170,243 units in 902 apartment properties; and
- managed 146,034 units in 1,003 apartment properties for third party
owners and affiliates.
AIMCO's Class A Common Stock is listed and traded on the NYSE under the
symbol "AIV." On March 23, 1999, the last reported sale price of AIMCO Class A
Common Stock on the NYSE was $35 3/16. The following table shows the high and
low reported sales prices and dividends declared per share of AIMCO's Class A
Common Stock for the periods indicated. The table also shows the distributions
per unit declared on the Common OP Units for the same periods.
<TABLE>
<CAPTION>
CLASS A PARTNERSHIP
COMMON STOCK COMMON
--------------------------- UNITS
CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION
----------------- ---- --- -------- ------------
<S> <C> <C> <C> <C>
1999
First Quarter (through March 23)........ $41 5/8 $35 3/16 $0.6250 $0.6250
1998
Fourth Quarter.......................... 37 3/8 30 0.5625 0.5625
Third Quarter........................... 41 30 15/16 0.5625 0.5625
Second Quarter.......................... 38 7/8 36 1/2 0.5625 0.5625
First Quarter........................... 38 5/8 34 1/4 0.5625 0.5625
1997
Fourth Quarter.......................... 38 32 0.5625 0.5625
Third Quarter........................... 36 3/16 28 1/8 0.4625 0.4625
Second Quarter.......................... 29 3/4 26 0.4625 0.4625
First Quarter........................... 30 1/2 25 1/2 0.4625 0.4625
1996
Fourth Quarter.......................... 28 3/8 21 1/8 0.4625 0.4625
Third Quarter........................... 22 18 3/8 0.4250 0.4250
Second Quarter.......................... 21 18 3/8 0.4250 0.4250
First Quarter........................... 21 1/8 19 3/8 0.4250 0.4250
</TABLE>
The principal executive offices of AIMCO, the AIMCO GP, the Special Limited
Partner and the AIMCO Operating Partnership are located at 1873 South Bellaire
Street, Denver, Colorado 80222, and their telephone number is (303) 757-8101.
S-22
<PAGE> 28
RISK FACTORS
The following sets forth certain risks and disadvantages of the offer and
should be read and considered when reviewing the potential benefits of the offer
set forth in "Background and Reasons for the Offer -- Expected Benefits of the
Offer." In addition, you should review the other risks of investing in us
beginning on page 2 of our accompanying Prospectus.
RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER
OFFER CONSIDERATION NOT BASED ON THIRD PARTY APPRAISAL OR ARMS-LENGTH
NEGOTIATION. We did not use any third-party appraisal or valuation to determine
the value of your partnership's property. We established the terms of our offer,
including the exchange ratios and the cash consideration without any arms-length
negotiations. It is uncertain whether our offer consideration reflects the value
which would be realized upon a sale of your units or a liquidation of your
partnership's assets. Because of our affiliation with your general partner, your
general partner makes no recommendation to you as to whether you should tender
your units. We have retained Stanger to conduct an analysis of our offer and to
render an opinion as to the fairness to you of our offer consideration from a
financial point of view.
OFFER CONSIDERATION MAY NOT REPRESENT FAIR MARKET VALUE. There is no
established or regular trading market for your units, nor is there another
reliable standard for determining the fair market value of your units. The offer
consideration does not necessarily reflect the price that you would receive in
an open market for your units. Such prices could be higher or lower than our
offer consideration.
OFFER CONSIDERATION DOES NOT REFLECT FUTURE PROSPECTS. Our offer
consideration is based on your partnership's historical property income. It does
not ascribe any value to potential future improvements in the operating
performance of your partnership's property.
OFFER CONSIDERATION BASED ON OUR ESTIMATE OF LIQUIDATION PROCEEDS. The
offer consideration represents only our estimate of the amount you would receive
if we liquidated the partnership. In determining the liquidation value, we used
the direct capitalization method to estimate the value of your partnership's
property because we think a prospective purchaser of the property would value
the property using this method. In doing so, we applied a capitalization rate to
your partnership's property income for the year ended December 31, 1997. In
determining the appropriate capitalization rate, we considered your
partnership's results of operations since December 31, 1997. If property income
for a different period or a different capitalization rate was used, a higher
valuation could result. Other methods of valuing your units could also result in
a higher valuation.
OFFER CONSIDERATION MAY BE LESS THAN LIQUIDATION VALUE. In determining our
offer consideration, we estimate your property to be worth $12,858,000 less
approximately $1,217,055 of deferred maintenance and investment. It is possible
that a sale of the property could result in you receiving more pretax cash per
unit than our offer. Even if our cash offer consideration is equal to
liquidation value, if you accept OP Units, you may not ultimately receive an
amount equal to the cash offer consideration when you sell such OP Units or any
AIMCO securities you may receive upon redemption of such OP Units.
HOLDING UNITS MAY RESULT IN GREATER FUTURE VALUE. You might receive more
pretax cash consideration if you do not tender your units and, instead, continue
to hold your units and ultimately receive proceeds from a liquidation of your
partnership.
CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is a
subsidiary of AIMCO and the AIMCO Operating Partnership and, therefore, has
substantial conflicts of interest with respect to our offer. We are making this
offer with a view to making a profit. There is a conflict between our desire to
purchase your units at a low price and your desire to sell your units at a high
price. The conflict results from the fact that we determined the offer
consideration without negotiating with any other party. We did not consult with
or negotiate with the general partner or any limited partner. Another conflict
is the fact that a decision of the limited partners of your partnership to
remove, for any reason, your general partner or the manager of your
partnership's property from its current position would result in a decrease or
elimination of the substantial fees paid to your general partner or the property
manager for services provided to your partnership. Such
S-23
<PAGE> 29
conflicts of interest in connection with our offer and our operation's differ
from those conflicts of interest that currently exist for your partnership.
CONFLICTS OF INTEREST RELATING TO MANAGEMENT FEES. Since our subsidiaries
receive fees for managing your partnership and its properties, a conflict of
interest exists between our continuing the partnership and receiving such fees,
and the liquidation of the partnership and the termination of such fees.
POSSIBLE SUBSEQUENT OFFER AT A HIGHER PRICE. It is possible that we may
make a subsequent offer at a higher price, but not earlier than one year after
expiration of this offer. Such a decision will depend on, among other things,
the performance of your partnership, prevailing interest rates, and our interest
in acquiring additional limited partnership interests.
POSSIBLE RECOGNITION OF TAXABLE GAIN ON A SALE OF YOUR UNITS. In general,
if you exchange your units solely for our OP Units, it will not be a taxable
transaction. If you sell your units for cash, you will recognize taxable gain or
loss in an amount equal to the difference between the amount realized on the
sale and your adjusted tax basis in your units sold. If you exchange your units
for cash and our OP Units, it will be treated, for Federal income tax purposes,
as a partial taxable sale of such units for cash and as a partial tax-free
contribution of such units to the AIMCO Operating Partnership. If you exchange
your units for cash or for cash and OP Units, the "amount realized" will be
measured by the sum of the cash you receive plus the portion of your
partnership's liabilities allocated to the units sold for Federal income tax
purposes. To the extent that the amount of cash received plus the allocable
share of your partnership's liabilities allocated to such units exceeds your tax
basis in the units sold, you will recognize gain. Consequently, the tax
liability resulting from such gain could exceed the amount of cash received upon
such sale. If you exercise your redemption right with respect to the OP Units
within two years of the date that you transfer your units to the AIMCO Operating
Partnership, your exchange of units for OP Units or OP Units and cash could be
treated as a disguised sale of your units and you would be required to recognize
gain or loss in the year of the exchange on such disguised sale. See "Federal
Income Tax Consequences -- Disguised Sales." Although we have no present
intention to liquidate or sell your partnership's property or prepay the current
mortgage on your partnership's property within any specified time period, any
such action in the future generally will require you to fully recognize any
deferred taxable gain if you exchange your units for OP Units. In addition, if
the AIMCO Operating Partnership were to be treated as a "publicly traded
partnership" for Federal income tax purposes, passive activity losses generated
by other passive activity investments held by you, including passive activity
loss carryovers attributable to your units, could not be used to offset your
allocable share of income generated by the AIMCO Operating Partnership. If you
redeem OP Units for shares of AIMCO Class A Common Stock or Preferred Stock, you
will recognize gain or loss measured by the difference between the amount
realized and your adjusted tax basis in the OP Units exchanged. In addition, if
you acquire shares of AIMCO stock, you will no longer be able to use income and
loss from your investment to offset "passive" income and losses from other
investments, and the distributions from AIMCO will constitute taxable income to
the extent of AIMCO's earnings and profits.
The particular tax consequences of the offer to you will depend upon a
number of factors related to your individual tax situation, including your tax
basis in your units, whether you dispose of all of your units in your
partnership and whether the "passive loss" rules apply to your investments. You
should review "Federal Income Tax Consequences" in this Prospectus Supplement
and "Federal Income Taxation of AIMCO and AIMCO Stockholders," Federal Income
Taxation of the AIMCO Operating Partnership and OP Unitholders" and "Other Tax
Consequences" in the accompanying Prospectus. Because the income tax
consequences of tendering units will not be the same for everyone, you should
consult your own tax advisor before determining whether to tender your units
pursuant to our offer.
FAIRNESS OPINION OF THIRD PARTY RELIED ON INFORMATION WE PROVIDED. Robert
A. Stanger & Co.'s analysis of our offer and opinion as to the fairness to you
of our offer consideration from a financial point of view relies on information
prepared by the general partner of your partnership (which is controlled by us).
No tests of the underlying data were performed, and no independent appraisal was
conducted. Because the fairness opinion will not be updated, changes may occur
from the date of the fairness opinion that might affect the conclusions
expressed in the opinion.
S-24
<PAGE> 30
LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. If you tender your
units in response to our offer, you will transfer all right title and interest
in and to all of the units that we accept, and all distributions in respect of
such units on or after the date on which we accept such units for purchase.
Accordingly, for any units that we acquire from you, you will not receive any
future distributions from operating cash flow of your partnership or upon a sale
of property owned by your partnership or a refinancing of any of its debt. If
you tender your units in exchange for OP Units, you will be entitled to future
distributions from the operating cash flow of the AIMCO Operating Partnership
and upon a dissolution, liquidation or winding-up of the AIMCO Operating
Partnership. See "Comparison of Your Units and AIMCO OP Units -- Distributions."
POSSIBLE EFFECT OF THE OTHER EXCHANGE OFFERS ON US. Concurrently with this
offer, we are making or intend to make similar offers to investors in
approximately 90 other limited partnerships. If all of these offers had been
completed by December 31, 1997, our net income for the nine months ended
September 30, 1998 would have been $24,703,000 instead of $41,493,000, based on
the assumptions included in the Pro Forma Financial Statements. If we borrow
funds for the cash consideration for these offers, our interest costs would
increase which could adversely affect our future earnings. If all units in all
the offers were purchased for cash and we borrowed all the funds, at current
interest rates, our interest expense would increase by $3,064,000 per year. See
"Pro Forma Financial Information of AIMCO Properties, L.P."
POTENTIAL DELAY IN PAYMENT. We reserve the right to extend the period of
time during which our offer is open and thereby delay acceptance for payment of
any tendered units. The offer may be extended indefinitely and no payment will
be made in respect of tendered units until the expiration of the offer and the
acceptance of units for payment.
RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER
FUNDAMENTAL CHANGE IN NATURE OF INVESTMENT. If you tender your units in
exchange for our OP Units, you will have changed fundamentally the nature of
your investment from (i) a partnership that distributes to its partners the
proceeds from the sale of a property or a refinancing of its indebtedness to
(ii) a partnership that reinvests the proceeds from sales of properties and
refinancings of its indebtedness. You will have changed from a small partnership
with a partnership termination date of December 31, 2013 to a much larger
partnership with a partnership termination date of 2093.
Under the AIMCO Operating Partnership's agreement of limited partnership,
the general partner has the ability, without the concurrence of the limited
partners, to acquire and dispose of properties and to borrow funds. Further,
while it is the intent to distribute net income from operations, sales of
properties and refinancings of indebtedness, the general partner may not make
such distributions. Proceeds of future asset sales or refinancings by the AIMCO
Operating Partnership generally will be reinvested rather than distributed.
FUNDAMENTAL CHANGE IN NUMBER OF PROPERTIES OWNED. If you exchange your
units for OP Units, you will have changed your investment from an interest in a
partnership which owns and manages a single property to an interest in the AIMCO
Operating Partnership which is in the business of acquiring, marketing, managing
and operating a large portfolio of apartment properties. While diversification
of assets may reduce certain risks of investment attributable to a single
property or entity, there can be no assurance as to the value or performance of
our securities and our portfolio of properties as compared to the value of your
units and your partnership.
LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP
Units. In addition, the AIMCO Operating Partnership's agreement of limited
partnership restricts the transferability of OP Units. We have no plans to list
the OP Units on a securities exchange. It is unlikely that any person will make
a market in the OP Units, or that an active market for the OP Units will
develop.
UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes
quarterly distributions based on its available cash, there can be no assurance
regarding the amounts of available cash that our operating partnership will
generate or the portion that we will choose to distribute.
S-25
<PAGE> 31
POSSIBLE REDUCTION IN REQUIRED DISTRIBUTIONS ON PREFERRED OP UNITS. On and
after March 1, 2005, we may reduce the rate of distributions required to be paid
on the Preferred OP Units, thus reducing the rate of return and possibly
encouraging you to redeem such units.
POSSIBLE REDEMPTION OF PREFERRED STOCK. On and after March 1, 2005, we may
redeem each share of Class I Preferred Stock for $25, plus any accumulated,
accrued and unpaid dividends, possibly forcing you to sell such shares to AIMCO
or to sell in the open market at a possibly lower price per share than would
have occurred without the redemption. If, for example, after five years we
redeemed the Class I Preferred Stock for $25 per share, you will have received
the present value equivalent of the cash consideration of our offer (assuming
annual distributions of $2.00 on each Preferred OP Unit, a discount rate of 8%
and without giving effect to the potential tax deferral associated with
receiving OP Units instead of cash).
POSSIBLE RECOGNITION OF TAXABLE GAINS ON OP UNITS. There are tax risks
associated with the acquisition, retention and disposition of OP Units. Although
your general partner (which is our subsidiary) has no present intention to
liquidate or sell your partnership's property or prepay the current mortgage on
the property within any specified time period, any such action in the future
generally will require you to fully recognize any deferred taxable gain if you
exchange your units for OP Units. See "Federal Income Taxation of the AIMCO
Operating Partnership and OP Unitholders" in the accompanying Prospectus. If you
exercise your redemption right with respect to the OP Units within two years of
the date that you transfer your units to the AIMCO Operating Partnership, your
exchange of units for OP Units and cash could be treated as a disguised sale of
your units and you would be required to recognize gain or loss in the year of
the exchange on such disguised sale. See "Federal Income Tax
Consequences -- Disguised Sales."
LIMITATIONS ON EFFECTING A CHANGE OF CONTROL. Our charter has restrictions
on the ownership of our equity securities in order to comply with certain REIT
tax requirements. The limited partners of the AIMCO Operating Partnership are
unable to remove the general partner of the AIMCO Operating Partnership or to
vote in the election of AIMCO's directors unless they own shares of AIMCO. As a
result, our limited partners and stockholders are limited in their ability to
effect a change of control of the AIMCO Operating Partnership and AIMCO.
LIMITATION ON TRANSFER OF OP UNITS. Investors in our partnership must hold
OP Units for one year, subject to exceptions. Thereafter transfers may be made
subject to applicable transfer restrictions.
LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating
Partnership is managed and operated by its general partner. Unlike the holders
of common stock in a corporation, holders of OP Units have only limited voting
rights on matters affecting the AIMCO Operating Partnership's business. Holders
of OP Units have no right to elect the general partner on an annual or other
continuing basis, and the general partner may not be removed by holders of
limited partnership interests. As a result, holders of OP Units have limited
influence on matters affecting the operation of the AIMCO Operating Partnership
and third parties may find it difficult to attempt to gain control or influence
the activities of our operating partnership. Such matters affecting the
operation of the AIMCO Operating Partnership include liquidation and
distribution policies, property purchases, and potential mergers or
acquisitions. See "Comparison of Your Units and AIMCO OP Units -- Voting
Rights."
MARKET PRICES FOR AIMCO'S SECURITIES MAY FLUCTUATE. We cannot predict the
prices at which our stock will trade in the future. Recently, there have been
fluctuations in the trading prices for many REIT equity securities, including
ours.
LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire
interests in limited partnerships that own apartment properties. In some cases
(such as for your partnership), we have acquired the general partner of a
partnership and then made an offer to acquire the limited partners' interests in
the partnership. There is a risk that we will be subject to litigation based on
claims that the general partner has breached its fiduciary duties to its limited
partners or that the transaction violates the relevant partnership agreement. As
a result, we may incur costs associated with defending or settling such
litigation or paying any judgment if we lose. As of the present time, no limited
partners of your partnership have initiated lawsuits on such grounds.
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DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited
number of additional OP Units or other securities for such consideration and on
such terms as we may establish, without the approval of the holders of OP Units.
Such securities could have priority over the OP Units as to cash flow,
distributions and liquidation proceeds. The effect of any such issuance may be
to dilute the interests of holders of OP Units.
RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER
POSSIBLE INCREASE IN CONTROL OF YOUR PARTNERSHIP BY US. Because your
general partner is a subsidiary of AIMCO, we control the management of your
partnership. In addition, if we acquire more units, we will increase our ability
to influence voting decisions with respect to your partnership. However, we will
not be able to control voting decisions unless we acquire more units in another
transaction, which cannot take place for at least one year after expiration of
this offer. Furthermore, in the event that we acquire a substantial number of
units pursuant to our offer, removal of your general partner (which is our
subsidiary) or the manager of any property owned by your partnership may become
more difficult or impossible without our consent.
RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR
PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your
partnership's liabilities is treated, for Federal income tax purposes, as a
deemed cash distribution. Although your general partner (which is our
subsidiary) has no current plan or intention to reduce the liabilities of your
partnership, it is possible that future economic, market, legal, tax or other
considerations may cause your general partner to reduce the liabilities of your
partnership. If the liabilities of your partnership were to be reduced, and you
do not tender all of your units pursuant to our offer, you will be treated as
receiving a hypothetical distribution of cash resulting from a decrease in your
share of the liabilities of your partnership. Any such hypothetical distribution
of cash would be treated as a nontaxable return of capital to the extent of your
adjusted tax basis in your units and thereafter as gain.
POSSIBLE TERMINATION OF YOUR PARTNERSHIP FOR FEDERAL INCOME TAX
PURPOSES. If there is a sale or exchange of 50% or more of the total interest in
capital and profits of your partnership within any 12-month period, including
sales or exchanges resulting from our offer, your partnership will terminate for
Federal income tax purposes. Any such termination may, among other things,
subject the assets of your partnership to longer depreciable lives than those
currently applicable. This would generally decrease the annual average
depreciation deductions allocable to you for a number of years if you do not
tender all of your units (thereby increasing the taxable income allocable to
your units in each such year), but would have no effect on the total
depreciation deductions available over the useful lives of the assets of your
partnership. Any such termination may also change (and possibly shorten) your
holding period with respect to your units that you choose to retain. Gain
recognized by you on the disposition of retained units with a holding period of
12 months or less may be classified as short-term capital gain and subject to
taxation at ordinary income tax rates.
RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's
agreement of limited partnership prohibits any transfer of units without the
consent of your general partner (which is our subsidiary). Such consent may be
withheld by your general partner in its sole discretion. Your general partner
may withhold its consent if such transfer would result in the termination of
your partnership for tax purposes which would occur if 50% or more of the total
interest in your partnership is transferred within a 12-month period. If we
acquire a significant percentage of the interest in your partnership, your
general partner may not consent to a transfer for a 12-month period following
our offer.
POSSIBLE CHANGE IN TIME FRAME REGARDING SALE OF PROPERTY. It is not known
when the property owned by your partnership may be sold. Therefore, there may be
no way to liquidate your investments in the partnership in the future until the
property is sold and your partnership is liquidated. You may continue to hold
the units not exchanged in this offer for an indefinite period of time. The
partnership currently owns one property. The general partner of your partnership
continually considers whether the property should be sold or otherwise disposed
of after consideration of relevant factors, including prevailing economic
conditions, availability of favorable financing and tax considerations, with a
view to achieving maximum capital appreciation for your partnership. We cannot
predict when the property will be sold or otherwise disposed of. However, there
is no current plan or intention to sell the property in the near future.
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BALLOON PAYMENT. Your partnership has approximately $11,872,282 balloon
payments due on its mortgage debt in November 2003. Your partnership will have
to refinance such debt or sell its property prior to the balloon payment date,
or it will be in default and could lose the property to foreclosure.
SPECIAL FACTORS TO CONSIDER
In reviewing the offer, you should pay special attention to the information
in the Sections entitled "Background and Reasons for the Offer," "Valuation of
Units," "Fairness of the Offer" and "Stanger Analysis," which contain
information regarding the background and reasons for the offer, the method of
evaluating units in the offer and alternative valuation methods considered, our
view as to the fairness of the offer, and the fairness opinion rendered by
Stanger.
BACKGROUND AND REASONS FOR THE OFFER
BACKGROUND OF THE OFFER
General
We are in the business of acquiring direct and indirect interests in
apartment properties such as the property owned by your partnership. Our offer
provides us with an opportunity to increase our ownership interest in your
partnership's property while providing you and other investors with an
opportunity to liquidate your current investment and to invest in our OP Units
or receive cash, or to retain your units.
On October 1, 1998, AIMCO merged (the "Insignia Merger") with Insignia
Financial Group, Inc. ("Insignia"). As a result of the Insignia Merger, AIMCO
acquired approximately 51% of the outstanding common shares of beneficial
interest of Insignia Properties Trust ("IPT"). The general partner of your
partnership is a wholly owned subsidiary of IPT. Through the Insignia Merger,
AIMCO also acquired a majority ownership interest in the entity that manages the
properties owned by your partnership. Through subsidiaries, AIMCO currently
owns, in the aggregate, no limited partnership interest and controls the general
partnership interest, in your partnership.
On October 31, 1998, IPT and AIMCO entered into an agreement and plan of
merger, dated as of October 1, 1998 (the "IPT Merger Agreement"), pursuant to
which IPT merged with AIMCO on February 26, 1999 (the "IPT Merger"). Upon
consummation of the IPT Merger, each outstanding share of IPT not owned by AIMCO
was converted into the right to receive 0.3601 shares of AIMCO's Class A Common
Stock (approximately 4,180,000 shares in the aggregate).
One of the reasons we chose to acquire Insignia is that we would be able to
make the exchange offers to acquire limited partnership interests of some of the
limited partnerships formerly controlled or managed by Insignia (the "Insignia
Partnerships"). Such offers would provide liquidity for the limited partners of
the Insignia Partnerships, and would provide the AIMCO Operating Partnership
with a larger asset and capital base and increased diversification. As of the
date of this offering, the AIMCO Operating Partnership proposes to make offers
to approximately 90 of the Insignia Partnerships, including your partnership.
During our negotiations with Insignia in early 1998, we decided that if the
merger with Insignia were consummated, we could also benefit from making offers
for limited partnership interests in the Insignia Partnerships. While some of
the Insignia Partnerships are public partnerships and information is publicly
available on such partnerships for weighing the benefits of making an exchange
offer, many of the partnerships are private partnerships and information about
such partnerships comes principally from the general partner. Our control of the
general partner makes it possible to obtain access to such information. Further,
such control also means that we control the operations of the partnerships and
their properties. Insignia did not propose that we conduct such exchange offers,
rather we initiated the offers on our own. We determined in June of 1998 that if
the merger with Insignia were consummated, we would offer to limited partners of
the Insignia Partnerships limited partnership units of the AIMCO Operating
Partnership and/or cash.
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In connection with the Insignia Merger we acquired general partnership
interests and certain limited partnership interests in a number of private and
public partnerships. Eight private partnerships out of the 90 partnerships
involved in the proposed exchange offers do not have audited financial
statements prepared in accordance with generally accepted accounting practices
("GAAP"). Certain of these partnerships have audited financial statements
prepared on the basis of federal income taxes and others have unaudited
financial statements which may or may not be prepared on the basis of GAAP or
federal income taxes. For the Insignia Partnerships for which exchange offers
are being made which do not have audited GAAP financial statements for at least
two years, we are making the offer on the basis of either one year of audited
GAAP financial statements and one year of unaudited GAAP financial statements or
just unaudited GAAP financial statements. We tried to obtain two years of
audited GAAP financial statements for all the partnerships for which offers are
being made, but because of the inability to locate records from inception of the
partnerships which would allow auditors to verify the original purchase price of
the properties, no audits were possible. In these cases, the entities which
controlled the general partners prior to Insignia are no longer in business or
have no current knowledge or records of such partnerships. For the same reasons,
we do not have all the records for past years of some of the partnerships.
Therefore, for the partnerships without an audit, we did not have invoices,
escrow statements, property closing statements or the like to support the
original costs of the real property to the satisfaction of independent auditors,
in order for them to render an unqualified audit report. Consequently, we have
no way to support the original cost of the properties. However, we have general
ledgers and related accounting records that enable us to prepare GAAP basis
financial statements. These records were taken from the entities that controlled
the general partners and were subsequently maintained by us. The amount of
capitalized property costs appearing in those books and records has, to our
knowledge, been appropriately rolled forward from year to year and used by the
general partners of the partnerships in question to prepare tax returns and
periodic reports to the investors in the partnerships. Therefore, we believe
that the unaudited financial statements included in the prospectus supplements
for such partnerships have been prepared in accordance with GAAP.
In acquiring Insignia and the interests in the Insignia Partnerships, we
conducted due diligence with regard to certain of the assets acquired including
the major properties held by the Insignia Partnerships. Our due diligence
focused on the condition of the major properties and the terms of the
partnership agreements. Since Insignia had audited GAAP financial statements and
since those partnerships without audited GAAP financial statements are generally
smaller, we did not focus on the issue of audited GAAP based financial
statements for the smaller partnerships at the time of the merger. Further, for
our internal due diligence use, audited tax based financial statements are also
used. The total number of Insignia Partnerships we acquired an interest in was
approximately 550 of which approximately 25 do not have audited GAAP statements.
We were not able to pick and choose the partnerships in which we would acquire
an interest. The Insignia Partnerships were part of the business of Insignia. As
a consequence, we acquired interests in certain small private partnerships which
do not have the ability to obtain audited GAAP financial statements. It is our
policy to acquire properties or partnerships with audited GAAP based financial
statements. However, in connection with large acquisitions of partnerships
interests, such as with the Insignia Merger, we may occasionally acquire a
partnership or property without audited GAAP financial statements.
Previous Tender Offers
Tender offers have been previously made with respect to certain of the
public Insignia Partnerships. However, there have not been any prior tender
offers to acquire units of your partnership. Except for such tender offers, we
are not aware of any merger, consolidation or other combination involving any of
the Insignia Partnerships, or any acquisitions of any of such partnerships or a
material amount of the assets of such partnerships.
Engagement of Fairness Opinion Provider
The AIMCO Operating Partnership contacted Stanger in August 1998 to discuss
the possibility of Stanger providing a fairness opinion for our offer. The AIMCO
Operating Partnership chose Stanger based on Stanger's expertise and strong
reputation in this area of work. The parties entered into a definitive agreement
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dated August 28, 1998 with Stanger to provide such a fairness opinion for your
partnership and other partnerships.
ALTERNATIVES CONSIDERED
The following is a brief discussion of the benefits and disadvantages of
alternatives to our offer that could have been pursued by your general partner
(which is our subsidiary).
Liquidation
Benefits of Liquidation. One alternative to our offer would be for your
partnership to sell its assets, distribute the net liquidation proceeds to its
partners in accordance with your partnership's agreement of limited partnership,
and then dissolve. Partners would be at liberty to use the net liquidation
proceeds after taxes for investment, business, personal or other purposes, at
their option. If your partnership were to sell its assets and liquidate, you and
your partners would not need to rely upon capitalization of income or other
valuation methods to estimate the fair market value of your partnership's
assets. Instead, such assets would be valued through negotiations with
prospective purchasers (in many cases unrelated third parties).
Disadvantages of Liquidation. A liquidating sale of part or all of your
partnership's property would be a taxable event for you and your partners and
could result in significant amounts of taxable income to you and your partners.
In the opinion of your general partner (which is our subsidiary), the present
time may not be the most desirable time to sell the real estate assets of your
partnership in private transactions, and any liquidation sale would be
uncertain. Liquidation of the partnership's assets may trigger a substantial
prepayment penalty on the order of 1% of the principal amount of the mortgage.
Your general partner believes it currently is in the best interest of your
partnership to continue holding its real estate assets.
Continuation of the Partnership Without the Offer
Benefits of Continuation. Although our offer permits you to continue your
investment in your partnership, a second alternative would be for your
partnership to continue as a separate legal entity, with its own assets and
liabilities and continue to be governed by its existing agreement of limited
partnership, without our offer. A number of advantages could result from the
continued operation of your partnership. Given improving rental market
conditions, the level of distributions might increase over time. Your
partnership reported no net income for the nine months ended September 30, 1997
and for the nine months ended September 30, 1998. It is possible that the
private resale market for apartment and retail properties could improve over
time, making a sale of your partnership's property in a private transaction at
some point in the future a more viable option than it is currently. The
continuation of your partnership will allow you to continue to participate in
the net income and any increases of revenue of your partnership and any net
proceeds from the sale of any property owned by your partnership. The General
Partner continues to review operations and expects to complete capital
expenditures in 1999 and 2000 enabling it to possibly increase rents and lower
expenses. In addition, a sale of the property may cause a tax gain to each
investor.
Disadvantages of Continuation. There are several risks and disadvantages
that result from continuing the operations of your partnership without our
offer. If your partnership continues operating as presently structured, your
partnership could be forced to borrow on terms that could result in net losses
from operations. Your partnership's mortgage notes are due in November 2003 and
require balloon payments totaling $11,872,282. Your partnership currently has
adequate sources of cash to finance its operations on both a short term and long
term basis but will have to sell the property or refinance its indebtedness in
2003 to pay such balloon payments. Continuation of your partnership without the
offer would deny you and your partners the benefits that your general partner
(which is our subsidiary) expects to result from the offer. For example, you
would have no opportunity for liquidity unless you were to sell your units in a
private transaction. Any such sale would likely be at a very substantial
discount from your pro rata share of the fair market value of your partnership's
property. Continuation without our offer would deny you and your partners the
benefits of diversification into a company which has a much larger and more
diverse portfolio of apartment properties.
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Alternative Structures Considered
Before we decided to make our offer, we considered a number of alternative
transactions, including purchasing your partnership's property; making an offer
of only cash for your units; making an offer of only Common OP Units for your
units; and making an offer of only Preferred OP Units for your units. A merger
would require a vote of the limited partners of your partnership. If the merger
was approved, all limited partners, including those who wish to retain their
units and continue to participate in your partnership, would be forced to
participate in the merger transaction. If the merger was not approved, all
limited partners, including those who would like to liquidate their investment
in your partnership, would be forced to retain their units.
We also considered purchasing your partnership's property from your
partnership. However, a sale of your partnership's properties would require a
vote of all the limited partners. If the sale was approved, all limited
partners, including those who wish to continue to participate in the ownership
of your partnership's property, would be forced to participate in the sale
transaction, and possibly to recognize taxable income. If the sale was not
approved, all limited partners, including those who would like to dispose of
their investment in your partnership's property, would be forced to retain their
investment.
In order to give all limited partners in your partnership an opportunity to
make their own investment decision, we elected to make an offer directly to you
and the other limited partners. We considered making an all cash offer in order
to satisfy some limited partners' desire for immediate liquidity. However, an
all cash offer would not be desirable for those limited partners who do not
desire immediate liquidity and do not want to immediately recognize any taxable
income, but might otherwise be interested in disposing of their investment in
your partnership and might want an opportunity to control the timing of any
realization of taxable income associated with liquidating such investment in the
future.
We considered making an offer of only OP Units, either all Common OP Units
or all Preferred OP Units. The primary disadvantage of an all OP Unit offer is
that those limited partners who want immediate liquidity would be forced to wait
at least one year before exchanging their OP Units for cash or AIMCO stock. We
decided to offer limited partners both Common OP Units and Preferred OP Units in
order to permit investors to make their own decision as to whether they
preferred the possibility of future capital appreciation (Common OP Units) or
preferred distribution rights (Preferred OP Units).
After considering these alternatives, we decided to offer limited partners
the possibility of all three forms of consideration: cash, Common OP Units and
Preferred OP Units. We think that such an offer will appeal to a large number of
limited partners in your partnership, while permitting each one to retain any or
all of his or her units and remain a limited partner in your partnership on the
same terms as before.
Sale of Assets
Your partnership could sell the property it owns. The general partner of
your partnership considers sale of your partnership's property from time to
time. However, any such sale would likely be a taxable transaction.
EXPECTED BENEFITS OF THE OFFER
We are in the business of acquiring direct and indirect interests in
apartment properties such as the property owned by your partnership. Our offer
provides us with an opportunity to increase our ownership interest in the
property owned by your partnership while providing you and other investors with
an opportunity to retain or liquidate your investment or to invest in the AIMCO
Operating Partnership.
There are four principal advantages of tendering your units for Preferred
OP Units:
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Preferred OP Units.
- Enhanced Liquidity After One Year. While holders of the Preferred OP
Units must hold such units for one year, subject to certain exceptions,
after a one-year holding period, you may choose to redeem your Preferred
OP Units and receive, at our option, shares of AIMCO's Class A Common
Stock or
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cash. After a two-year holding period, if you choose to redeem your
Preferred OP Units, you may receive, at our option, cash, shares of
AIMCO's Class I Preferred Stock or shares of AIMCO's Class A Common
Stock. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred
Stock is expected to be, currently listed and traded on the NYSE.
- Preferred Quarterly Distributions. Your partnership paid no distributions
for the fiscal year ended December 31, 1998. Holders of Preferred OP
Units will be entitled to receive quarterly distributions of $0.50 per
unit (equivalent to $2.00 on an annualized basis) before any
distributions are paid to holders of Common OP Units. This is equivalent
to a distribution of $8.00 per year on the number of Preferred OP Units
you will receive in exchange for each of your partnership units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
There are five principal advantages of tendering your units for Common OP
Units:
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Common OP Units.
- Enhanced Liquidity After One Year. While the holders of the Common OP
Units must hold such units for one year, subject to certain exceptions,
after a one-year holding period, you may choose to redeem your Common OP
Units and receive, at our option, shares of AIMCO's Class A Common Stock
(on a one-for-one basis, subject to adjustment in certain circumstances)
or an equivalent amount of cash. AIMCO's Class A Common Stock is listed
and traded on the NYSE.
- Quarterly Distributions. Your partnership paid no distributions for the
fiscal year ended December 31, 1998. In 1998, we paid quarterly
distributions on the Common OP Units totalling $2.25. In January 1999, we
increased our distribution rate on each of the Common OP Units to $2.50
on an annual basis. Assuming no change in the level of our distributions,
this is equivalent to a distribution of $6.88 per year on the number of
Common OP Units you will receive in exchange for each of your partnership
units. See "The AIMCO Operating Partnership."
- Growth Potential. Our assets, organizational structure and access to
capital enables us to pursue acquisition and development opportunities
that are not available to your partnership. You would have the
opportunity to participate in the growth of our enterprise and would
benefit from any future increase in the AIMCO stock price and from any
future increase in distributions on the Common OP Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
The principal advantage if you tender your units for cash is immediate
liquidity. However, tendering your units for cash may cause you to recognize
taxable gain for Federal income tax purposes.
DISADVANTAGES OF THE OFFER
The principal disadvantages to the offer are:
- Lack of Independent Price Determination. We determined the offer price
and the terms of the offer, including the exchange ratio for Common OP
Units and Preferred OP Units, and the terms of the Preferred OP Units and
the Class I Preferred Stock. The terms of the offer and the nature of the
securities could differ if they were subject to independent third party
negotiations. We determined the offering price and asked Stanger to
determine if the price was fair. We did not ask Stanger to determine a
fair price.
- No Separate Representation of Limited Partners. In structuring the offer
and the consideration, no one separately represented the interests of the
limited partners. Although we have a fiduciary duty to
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the limited partners, we also have conflicting responsibilities to our
equity holders. We did not appoint, or ask the limited partners to
appoint, a party to represent only their interests.
- No Proposal to Sell the Property. We are not proposing to try to
liquidate the partnership and sell the partnership's property and
distribute the net proceeds. An arms-length sale of the property after
offering it for sale through licensed real estate brokers might be a
better way to determine the true value of the property rather than the
method we chose. The sale of the property and the liquidation of the
partnership might result in greater pre-tax cash proceeds to you than our
offer.
- OP Units. Investing in OP Units has risks that include the lack of a
public market, transfer restrictions and a one year holding period before
they can be redeemed by a holder. The ultimate return on the OP Units is
directly tied to the future price of AIMCO's Class A Common Stock or
Class I Preferred Stock. You could ultimately receive less for your OP
Units than the cash price in our offer. Further, on or after March 1,
2005, we may redeem the Class I Preferred Stock for $25 per share.
- CONTINUATION OF THE PARTNERSHIP. We are proposing to continue to operate
your partnership and not to attempt to liquidate it at the present time.
Thus, our offer does not satisfy any expectation that you would receive
the return of your investment in the partnership through a sale of the
property at the present time. At the current time we do not believe that
the sale of the property would be advantageous given market conditions,
the condition of the property and tax considerations. In particular, we
considered the changes in the local rental market, the potential for
appreciation in the value of a property and the tax consequences to you
and your partners on a sale of a property. See also "Your
Partnership -- General Policy Regarding Sales and Refinancings of
Partnership Property."
- POSSIBLE RECOGNITION OF TAXABLE GAIN. If you exercise your redemption
right with respect to the OP Units within two years of the date that you
transfer your units to the AIMCO Operating Partnership, your exchange of
units for OP Units and cash could be treated as a disguised sale of your
units and you would be required to recognize gain or loss in the year of
the exchange on such disguised sale. See "Federal Income Tax
Consequences -- Disguised Sales."
For a description of certain risks of our offer, see "Risk Factors."
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VALUATION OF UNITS
We determined our cash offer consideration by estimating the value of the
property owned by your partnership using the direct capitalization method. This
method involves applying a capitalization rate to your partnership's annual
property income. A capitalization rate is a percentage (rate of return),
commonly applied by purchasers of residential real estate to property income to
determine the present value of income property. The lower the capitalization
rate utilized the higher the value produced, and the higher the capitalization
rate utilized the lower of the value produced. We used your partnership's
property income for the fiscal year ended December 31, 1997. However, in
determining the appropriate capitalization rate, we considered your
partnership's property income since December 31, 1997. Our method for selecting
a capitalization rate begins with each property being assigned a location and
condition rating (e.g., "A" for excellent, "B" for good, "C" for fair, and "D"
for poor). We have rated your property's location B (good) and its condition B
(good). Generally, we assign an initial capitalization rate of 10.25% to
properties in this category. We then adjust the capitalization rate based on
whether the mortgage debt that the property is subject to bears interest at a
rate above or below 7.5% per annum. Generally, for every 0.5% in excess of 7.5%,
the capitalization rate would be increased by 0.25%. Your property's mortgage
debt bears interest at 7.61% per annum, which resulted in an increase from the
initial capitalization rate of 0.25%. We also considered any changes in your
partnership's property income from 1997 to 1998. Because your partnership's
property income in 1998 remained relatively unchanged compared to 1997, we made
no further revision of the capitalization rate, resulting in a final
capitalization rate of 10.50%. The evaluation of a property's location and
condition, and the determination of an appropriate capitalization rate for a
property, is subjective in nature, and others evaluating the same property might
use a different capitalization rate and derive a different property value.
Property income is the difference between the revenues from the property
and related costs and expenses, excluding income derived from sources other than
its regular activities and before income deductions. Income deductions include
interest, income taxes, prior-year adjustments, charges to reserves, write-offs
of intangibles, adjustments arising from major changes in accounting methods and
other material and nonrecurrent items. In this respect, property income differs
from net income disclosed in the partnership's financial statements, which does
not exclude these income sources and deductions. The following is a
reconciliation of your partnership's net income for the year ended December 31,
1997, to your partnership's property income for the same period.
<TABLE>
<S> <C>
Net Income (Loss)........................................... $ (195,841)
Other Non-Operating Expenses................................ 27,043
Depreciation................................................ 485,483
Interest.................................................... 981,514
Amortization................................................ 51,801
----------
Property income............................................. $1,350,000
</TABLE>
Although the direct capitalization method is a widely accepted way of
valuing real estate, there are a number of other methods available to value real
estate, each of which may result in different valuations of a property. Further,
in applying the direct capitalization method, others may make different
assumptions and obtain different results. The proceeds that you would receive if
you sold your units to someone else or if your partnership were actually
liquidated might be higher or lower than our cash offer consideration. We
determined our cash offer consideration as follows:
- First, we estimated the value of the property owned by your partnership
using the direct capitalization method. We selected capitalization rates
based on our experience in valuing similar properties. The lower the
capitalization rate applied to a property's income, the higher its value.
We considered local market sales information for comparable properties,
estimated actual capitalization rates (property income less capital
reserves divided by sales price) and then evaluated each property in
light of its relative competitive position, taking into account property
location, occupancy rate, overall property condition and other relevant
factors. The AIMCO Operating Partnership believes that arms-length
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<PAGE> 40
purchasers would base their purchase offers on capitalization rates comparable
to those used by us, however there is no single correct capitalization rate and
others might use different rates.
- Second, we calculated the value of the equity of your partnership by
adding to the aggregate gross property value of all properties owned by
your partnership, the value of the non-real estate assets of your
partnership, and deducting the liabilities of your partnership, including
mortgage debt and debt owed by your partnership to its general partner or
its affiliates after consideration of any applicable subordination
provisions affecting payment of such debt. We deducted from this value
certain other costs including required capital expenditures, deferred
maintenance, and closing costs to derive a net equity value for your
partnership of $0. Closing costs, which are estimated to be 2.5% of the
gross property value, include legal and accounting fees, real property,
transfer taxes, title and escrow costs and broker's fees.
- Third, using this net equity value, we determined the proceeds that would
be paid to holders of units in the event of a liquidation of your
partnership, based on the terms of your partnership's agreement of
limited partnership. We believe that if your partnership was liquidated
there would not be enough value to fully discharge all known liabilities.
We have, however, decided to offer you $100 per unit.
<TABLE>
<S> <C>
Property income............................................. $ 1,350,000
Capitalization rate......................................... 10.50%
------------
Gross valuation of partnership property..................... 12,858,000
Net Cash Shortfall.......................................... 1,168,575
Plus: Cash and cash equivalents............................. 578,121
Plus: Other partnership assets, net of security deposits.... 45,289
Less: Mortgage debt, including accrued interest............. (13,014,001)
Less: Accounts payable and accrued expenses................. (68,578)
Less: Other liabilities..................................... (28,901)
------------
Partnership valuation before taxes and certain costs........ 1,538,505
Less: Disposition fees...................................... 0
Less: Extraordinary capital expenditures and deferred
maintenance............................................... (1,217,055)
Less: Closing costs......................................... (321,450)
------------
Estimated net valuation of your partnership................. 0
Percentage of estimated net valuation allocated to holders
of units.................................................. n/a
------------
Estimated net valuation of units............................ 0
Total number of units............................. 50.0
------------
Estimated valuation per unit................................ 0
============
Cash consideration per unit................................. 100
============
</TABLE>
- In order to determine the number of Preferred OP Units we are offering
you, we divided the cash offer consideration of $100 by the $25
liquidation preference of each Preferred OP Unit to get 4.00 Preferred OP
Units per unit.
- In order to determine the number of Common OP Units we are offering for
each of your units, we divided the cash offer consideration of $100 by a
price of $37.63 (the average closing price of AIMCO's Class A Common
Stock on the NYSE for the 30 trading days ended on March 23, 1999) to get
2.75 Common OP Units per unit.
The total net valuation of all partnerships in which the AIMCO Operating
Partnership is making similar exchange offers, and which were valued using the
same methods as used for your partnership, is $568,751,183, of which, $0 or
0.00% is the net valuation of your partnership.
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<PAGE> 41
FAIRNESS OF THE OFFER
POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER;
FAIRNESS
Your general partner is a subsidiary of the AIMCO Operating Partnership. As
a result, your general partner has a conflict of interest and makes no
recommendation to you as to whether you should tender or refrain from tendering
your units. Your general partner has substantial conflicts of interest with
regard to the offer. However, for all of the reasons discussed herein, we and
your general partner believe that the offer and all forms of consideration
offered is fair to you and the limited partners of your partnership. We also
reasonably believe that the similar offers to the limited partners of the other
partnerships are fair to such limited partners. The AIMCO Operating Partnership
has retained Stanger to conduct an analysis of the offer and to render an
opinion as to the fairness to unitholders of the offer consideration from a
financial point of view. Stanger is not affiliated with us or your partnership.
Stanger is one of the leaders in the field of analyzing and evaluating complex
real estate transactions. However, we provided much of the information used by
Stanger in forming its fairness opinion. We believe the information provided to
Stanger is accurate in all material respects. See "Stanger Analysis." You should
make your decision whether to tender based upon a number of factors, including
your financial needs, other financial opportunities available to you and your
tax position.
The terms of our offer have been established by us and are not the result
of arms-length negotiations. In evaluating the fairness of the offer, your
general partner (which is our subsidiary) and the AIMCO Operating Partnership
considered the following factors and information:
1. The opportunity for you to make an individual decision on whether to
tender your units in the offer and that the offer allows each investor to
continue to hold his or her units.
2. The estimated value of your partnership's property has been
determined based on a method believed to reflect the valuation of such
assets by buyers in the market.
3. An analysis of the possible alternatives including liquidation and
continuation without the option of the offer. See "Background and Reasons
for the Offer -- Alternatives Considered."
4. An evaluation of the financial condition and results of operations of
your partnership and the AIMCO Operating Partnership and their anticipated
level of operating results. The offer is not expected to have an effect on
your partnership's financial condition or results of operations. The net
loss of your partnership has increased from $129,694 for the nine months
ended September 30, 1997 to $240,765 for the nine months ended September
30, 1998. These factors are reflected in our valuation of your partnership.
5. The method of determining the offer consideration which is intended
to provide you with OP Units or cash that are substantially the financial
equivalent to your interest in your partnership. See "Valuation of Units."
6. The opinion of Stanger, an independent third party, that the offer
consideration is fair to holders of units from a financial point of view
and Stanger's estimates of the net asset value ($0 per unit), going concern
value ($0 per unit) and liquidation value ($0 per unit) of your partnership
units. See "Stanger Analysis."
7. The fact that the units are illiquid and the offer provides holders
of units with liquidity. However, we did review whether trading information
was available.
8. The fact that the offer generally provides holders of units with the
opportunity to receive both cash and OP Units together.
9. The fact that the offer provides holders of units with the
opportunity to defer taxes by electing to accept Preferred OP Units or
Common OP Units.
10. An evaluation of the market price of the Class A Common Stock and
the limited information on prices at which Common OP Units and units are
transferred. See "Your Partnership -- Distributions
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<PAGE> 42
and Transfers of Units." No assurance can be given that the Class A Common
Stock will continue to trade at its current price.
11. The estimated unit value of $100, based on a total estimated value
of your partnership's property of $12,858,000. Your general partner (which
is our subsidiary) has no present intention to liquidate your partnership
or to sell or refinance your partnership's property. See "Background and
Reasons for the Offer". See "Valuation of Units" for a detailed explanation
of the methods we used to value your partnership.
12. Anticipated annualized distributions with respect to the Preferred
OP Units are $2.00 and current annualized distributions with respect to the
Common OP Units are $2.50. This is equivalent to distributions of $8.00 per
year on the number of Preferred OP Units, or distributions of $6.88 per
year on the number of Common OP Units, that you would receive in exchange
for each of your partnership's units. Distributions with respect to your
units for the fiscal year ended December 31, 1998 were $0. See "Comparison
of Your Units and AIMCO OP Units -- Distributions."
13. The fact that if your partnership were liquidated as opposed to
continuing, the general partner (which is our subsidiary) would not receive
the substantial management fees it currently receives. As discussed in
"Fairness of the Offer -- Comparison of Consideration to Alternative
Consideration -- Estimated Liquidation Proceeds," we do not believe that
liquidation of the partnership is in the best interests of the unitholders.
Therefore, we believe the offer is fair in that the fees paid to the
general partner would continue even if the offer was not consummated. We
are not proposing to change the current management fee arrangement.
In evaluating these factors, your general partner (which is our subsidiary)
and the AIMCO Operating Partnership did not quantify or otherwise attach
particular weight to any of them.
Your general partner (which is our subsidiary) has not retained an
unaffiliated representative to act on behalf of the limited partners in
negotiating the terms of the offer since each individual limited partner can
make his own decision as to whether or not to tender and what consideration to
take. Unlike a merger or other form of partnership reorganization, a majority or
more of the holders of limited partnership interests in your partnership cannot
bind you. If an unaffiliated representative had been obtained, it is possible
that such representative could have negotiated a higher price for your units
than was unilaterally offered by the AIMCO Operating Partnership. We have
retained Stanger to conduct an analysis of our offer and to render an opinion as
to the fairness to you of the offer consideration from a financial point of
view. Although no representative has been retained to act solely on behalf of
the limited partners for purposes of negotiating the terms of the offer, we have
determined that the transaction is fair to you from a financial point of view.
We made this determination based, in part, on the fairness opinion from Stanger
and the fact that all limited partners may elect to retain their existing
security on the same terms as before our offer.
FAIRNESS TO UNITHOLDERS WHO TENDER THEIR UNITS
Your general partner (which is our subsidiary) makes no recommendation as
to whether you should tender or refrain from tendering your units. The terms of
the offer have been established by the AIMCO Operating Partnership and are not
the result of arms-length negotiations. See "Conflicts of Interest." The general
partner of your partnership and the AIMCO Operating Partnership believe that the
valuation method described in "Valuation of Units" provides a meaningful
indication of value for residential apartment properties and, although there are
other ways to value real estate, is a reasonably fair method to determine the
consideration offered. Although we believe our offer consideration represents
the amount you would receive if we currently liquidated your partnership, an
actual liquidation might generate a higher or lower price for holders of units.
A liquidation in the future might generate a higher or lower price for holders
of units.
The future value of the OP Units received in the offer will depend on some
of the same factors that will affect the value of the units, primarily the
condition of the real estate markets. However, if you exchange your units for OP
Units, you will be able to liquidate your investment only by tendering your OP
Units for
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<PAGE> 43
redemption after a one-year holding period or by selling your OP Units, which
may preclude you from realizing the full value of your investment.
FAIRNESS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS
Your general partner (which is our subsidiary) makes no recommendation as
to whether you should tender or refrain from tendering your units. If you choose
not to tender any units, your interest in your partnership will remain
unchanged. The identity of the other limited partners of your partnership may
change. If the AIMCO Operating Partnership acquires a substantial number of
units pursuant to the offer, AIMCO may be in a position to influence voting
decisions with respect to your partnership. AIMCO has no present intention to
sell your partnership's property or refinance its indebtedness within any
specified time period.
COMPARISON OF CONSIDERATION TO ALTERNATIVE CONSIDERATION
General
To assist holders of units in evaluating the offer, your general partner
(which is our subsidiary) has attempted to compare the cash offer consideration
against: (a) estimates of the value of the units on a liquidation basis; (b)
estimates of the going concern value of your units based on continuation of your
partnership as a stand-alone entity; and (c) the net book value of your units.
The general partner of your partnership believes that analyzing the alternatives
in terms of estimated value, based upon currently available data and, where
appropriate, reasonable assumptions made in good faith, establishes a reasonable
framework for comparing alternatives. Since the value of the consideration for
alternatives to the offer is dependent upon varying market conditions, no
assurance can be given that the estimated values reflect the range of possible
values. See "Valuation of Units."
The results of these comparative analyses are summarized in the following
chart. You should bear in mind that the estimated values assigned to the
alternate forms of consideration are based on a variety of assumptions that have
been made by us. These assumptions relate to, among other things: the operating
results since December 31, 1997 as to income and expenses of each property,
other projected amounts and the capitalization rates that may be used by
prospective buyers if your partnership assets were to be liquidated. The 1998
budget is discussed in "Stanger Analysis -- Summary of Materials Considered" and
other projected amounts are discussed in "Stanger Analysis -- Summary of
Reviews."
In addition, these estimates are based upon certain information available
to your general partner (which is our subsidiary) at the time the estimates were
computed, and no assurance can be given that the same conditions analyzed by it
in arriving at the estimates of value would exist at the time of the offer. The
assumptions used have been determined by the general partner of your partnership
in good faith, and, where appropriate, are based upon current and historical
information regarding your partnership and current real estate markets, and have
been highlighted below to the extent critical to the conclusions of the general
partner of your partnership. Actual results may vary from those set forth below
based on numerous factors, including interest rate fluctuations, tax law
changes, supply and demand for similar apartment properties, the manner in which
your partnership's property is sold and changes in availability of capital to
finance acquisitions of apartment properties.
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<PAGE> 44
Under your partnership's agreement of limited partnership, the term of the
partnership will continue until December 31, 2013, unless sooner terminated as
provided in the agreement or by law. Limited partners could, as an alternative
to tendering their units, take a variety of possible actions, including voting
to liquidate the partnership or amending the agreement of limited partnership to
authorize limited partners to cause the partnership to merge with another entity
or engage in a "roll-up" or similar transaction.
COMPARISON TABLE
<TABLE>
<CAPTION>
PER UNIT
---------
<S> <C>
Cash offer price............................................ $ 100
Partnership preferred units................................. $ 100(1)
Partnership common units.................................... $ 100(1)
Alternatives:
Estimated liquidation proceeds............................ $ 0
Estimated going concern value............................. $ 0(2)
Estimated alternative going concern value................. $ 0(3)
Net book value (deficit).................................. $(208,629)
</TABLE>
- ---------------
(1) In our discussion of the offer price as being fair with regard to other
methods of valuing your partnership, we believe the number of Common OP
Units and Preferred OP Units to be issued per unit in the offer to be equal
to the cash price per unit. Therefore, the fairness discussion applies
equally to the cash and non-cash forms of consideration being effected. See
"Valuation of Units" for details of how the number of OP Units was
determined.
(2) Assumes a refinancing of the partnership property's mortgage when it comes
due.
(3) Assumes a sale of the partnership property when the mortgage is due, rather
than a refinancing of the mortgage.
Prices on Secondary Market
There is no active market for your units. Your general partner (which is
our subsidiary) is unaware of any secondary market activity in the units.
Therefore any comparison to prices on the secondary market is not possible at
the present time. See "Your Partnership -- Distributions and Transfers of
Units -- Transfers."
Prior Tender Offers
There have been no previous tender offers for units of your partnership.
Estimated Liquidation Proceeds
Liquidation value is a measure of the price at which the assets of your
partnership would sell if disposed of in an arms-length transaction between a
willing buyer and your partnership, each having access to relevant information
regarding the historical revenues and expenses of the business. Your general
partner (which is our subsidiary) estimated the liquidation value of units using
the same direct capitalization method and assumptions as we did in valuing the
units for the cash offer consideration. See "Valuation of Units." The
liquidation analysis also assumed that your partnership's property was sold to
an independent third-party buyer at the current property value and that other
balance sheet assets (excluding amortizing assets) and liabilities of your
partnership were sold at their book value, and that the net proceeds of sale
were allocated to your partners in accordance with your partnership's agreement
of limited partnership.
The liquidation analysis assumes that the assets of your partnership are
sold in a single transaction. Should the assets be liquidated over time, even at
prices equal to those projected, distributions to limited partners from cash
flow from operations might be reduced because your partnership's relatively
fixed costs, such as general and administrative expenses, are not
proportionately reduced with the liquidation of assets. However, for
simplification purposes, the sales of the assets are assumed to occur
concurrently. The
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<PAGE> 45
liquidation analysis assumes that the assets would be disposed of in an orderly
manner and not sold in forced or distressed sales where sellers might be
expected to dispose of their interests at substantial discounts to their actual
fair market value.
Estimated Going Concern Value and Alternate Going Concern Value
Going concern value is a measure of the value of your partnership if it
continued operating as an independent stand-alone entity. The estimated value of
the partnership on a going concern basis is not intended to reflect the
distributions payable to limited partners if its assets were to be sold at their
current fair market value. The general partner of your partnership estimated the
going-concern value of your partnership by analyzing projected cash flows and
performing a discounted cash flow analysis. The general partner of your
partnership assumed that your partnership will be operated in the same manner as
currently, as an independent stand-alone entity, and its assets sold in a
liquidation after a ten-year holding period. Distribution and sale proceeds per
partnership unit were discounted in the projections at a rate of 40%.
The general partner of your partnership assumed that real estate selling
costs will be incurred which will equal 3.0% of the sales price. This analysis
assumes that the partnership property will be sold in a liquidation, at the
expiration of the ten-year holding period, to an independent third-party buyer.
Upon such liquidation, other balance sheet assets (excluding amortizing assets)
and liabilities of your partnership will be sold at their book value, and the
net proceeds of sale will be allocated between the general partners and offerees
in accordance with your partnership's agreement of limited partnership. Should
the assets be liquidated over time, even at prices equal to those projected,
distributions to limited partners of your partnership's cash flow from
operations might be reduced because relatively fixed costs, such as general and
administrative expenses, are not proportionately reduced with the liquidation of
assets. However, for simplification purposes, the sales are assumed to occur
concurrently.
The going concern method relies on a number of assumptions, including among
other things, (i) rental rates for new leases and lease renewals; (ii)
improvements needed to prepare an apartment for a new lease or a renewal lease;
(iii) lease periods; (iv) capital expenditures; (v) broker's commissions; and
(vi) discount rates applied to future cash flows. The use of assumptions or
variables that differ from those described above could produce substantially
different results. Neither we nor the general partner of your partnership
solicited any offers or inquiries from prospective buyers of the property owned
by your partnership in connection with the preparation of the estimates of value
of the properties and the actual amounts for which the partnership's properties
or the partnership could be sold could be significantly higher or lower than any
of the estimates contained herein. The estimated going concern value of your
partnership is $0 per unit, which value is below our offer price per unit.
Therefore, we believe the offer price is fair in relation to the going concern
value.
Your partnership's property currently has a balloon payment due in November
2003. While the going concern value was based on your partnership refinancing
its indebtedness and continuing to own its property, the alternative going
concern value of $0 is based on selling the property when the balloon payment is
due. For the reasons set forth above, we believe the offer consideration is fair
in relationship to the alternative going concern value.
The general partner determined going concern value based upon the
discounted present value of projected cash flows from the partnership over a
ten-year period of operation, which is a standard period for going concern
analyses for real property assets. Such discounted cash flows were based upon
year one property income from the real estate portfolio of $1,350,000, escalated
at a 3% per annum for the ten-year projection period. Property income was
reduced by: (i) partnership administrative expenses of $30,000 per annum; and
(ii) debt service on existing debt through maturity or the end of ten years,
whichever occurs first. For debt which matures during the ten-year period, a
refinancing at a 7% interest rate was assumed. At the end of the ten-year
projection period, the property was assumed to be sold at a price based upon
property income for the immediately following year capitalized at a
capitalization rate of 11%, less expenses of sale estimated at 3% of the
property value. The net cash flow to limited partners from the continued
operation of the property and the net proceeds of sale was then discounted at a
discount rate of 40% to achieve the going concern value of $0 per unit.
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<PAGE> 46
The capitalization rate used to determine the going concern value is 0.5%
greater than the capitalization rate used in the liquidation analysis. The
higher capitalization rate reflects the additional risk associated with the
calculation of going concern value. These risks include: (i) projected growth in
net operating income of 3% per annum, and (ii) the older age of the property at
the time of the projected sale. Furthermore, we were advised by Stanger that it
is common practice in the valuation of real estate to increase the
capitalization rate by at least 0.5% when estimating a value based upon
discounted future cash flows.
Your partnership's property currently has a balloon payment due in November
2003. While the going concern value was based on your partnership refinancing
its indebtedness and continuing to own its property; the alternative going
concern value of $0 is based on selling the property when the balloon payment is
due and otherwise includes the same assumptions as the going concern value
described above. For the reason set forth above, we believe the offer
consideration is fair in relation to the alternative going concern value.
There is currently no market for the Partnership Preferred Units or
Partnership Common Units.
Net Book Value
Net book value per unit is a deficit of $208,629 and therefore a comparison
with the offering price would not be meaningful in determining the fairness of
the offering price.
Stanger's Estimate of Net Asset Value, Going Concern Value and Liquidation
Value
In rendering its opinion set forth as Appendix A, Stanger did its own
independent estimate of your partnership's net asset value of $0 per unit, going
concern value of $0 per unit and liquidation value of $0 per unit. For an
explanation of how Stanger determined such values see "Stanger
Opinion -- Summary of Reviews -- Comparison of Offer Price To Liquidation Value,
Going Concern Value and Secondary Market Prices." An estimate of your
partnership's net asset value per unit is based on a hypothetical sale of your
partnership's property and the distribution to the limited partners and the
general partner of the gross proceeds of such sales, net of related
indebtedness, together with the cash, proceeds from temporary investments, and
all other assets that are believed to have a liquidation value, after provisions
in full for all of the other known liabilities of your partnership. The net
asset value does not take into account (i) timing considerations discussed under
"Fairness of the Offer -- Comparison of Consideration to Alternative
Consideration -- Estimated Liquidation Proceeds," and (ii) costs associated with
winding up of your partnership. Therefore, the AIMCO Operating Partnership
believes that the estimate of net asset value per unit does not necessarily
represent the fair market value of a unit or the amount the limited partner
reasonably could expect to receive if the partnership's property was sold and
the partnership was liquidated. For this above reason, the AIMCO Operating
Partnership considers net asset value estimates to be less meaningful in
determining the offer consideration than the analysis described above under
"Valuation of Units."
Stanger's estimates of net asset value, going concern value and liquidation
value per unit represents discounts to the offer price of $100, $100 and $100.
In light of these discounts and for all the reasons set forth above, the AIMCO
Operating Partnership believes the offer price is fair to the limited partners.
The AIMCO Operating Partnerships believes that the best and most commonly used
method of determining the value of a partnership which only owns an apartment is
the capitalization of income approach set forth in "Valuation of Units."
ALLOCATION OF CONSIDERATION
We have allocated the estimated liquidation proceeds in accordance with the
liquidation provisions of your partnership agreement of limited partnership. We
believe that if your partnership was liquidated there would not be enough value
to fully discharge all known liabilities. We have, however, decided to offer you
$100 per unit. Since the allocation was made in accordance with the terms of
such partnership agreement, we believe the allocation is fair. See "Valuation of
Units."
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<PAGE> 47
STANGER ANALYSIS
We engaged Stanger, an independent investment banking firm, to conduct an
analysis and to render an opinion (the "Fairness Opinion") as to whether the
offer consideration for the units is fair, from a financial point of view, to
the unitholders. We selected Stanger because of its experience in providing
similar services to other parties in connection with real estate merger and sale
transactions and Stanger's experience and reputation in connection with real
estate partnerships and real estate assets. No other investment banking firm was
engaged to provide, or has provided, any report, analysis or opinion relating to
the fairness of our offer.
Stanger has advised us that, subject to the assumptions, limitations and
qualifications contained in its Fairness Opinion, the offer consideration for
the units is fair, from a financial point of view, to the unitholders. We
determined the offer consideration, and Stanger did not, and was not requested
to, make any recommendations as to the form or amount of consideration to be
paid in connection with the offer.
The full text of the Fairness Opinion, which contains a description of the
matters considered and the assumptions, limitations and qualifications made, is
set forth as Appendix A hereto and should be read in its entirety. Stanger has
advised us that the description of Stanger's analysis contained herein describes
the material portions of Stanger's review. The summary set forth herein does not
purport to be a complete description of the review performed by Stanger in
rendering the Fairness Opinion. Arriving at a fairness opinion is a complex
process not necessarily susceptible to partial analysis or amenable to summary
description.
We imposed no conditions or limitations on the scope of Stanger's
investigation or with respect to the methods and procedures to be followed in
arriving at the fairness opinion. See "-- Assumptions, Limitations and
Qualifications." We have agreed to indemnify Stanger against any losses, claims,
damages, liabilities or expenses to which Stanger may be subject, under any
applicable federal or state law, including federal and state securities laws,
arising out of Stanger's engagement to prepare and deliver the Fairness Opinion.
EXPERIENCE OF STANGER
Since its founding in 1978, Stanger and its affiliates have provided
information, research, investment banking and consulting services to clients
located throughout the United States, including major NYSE member firms,
insurance companies and over seventy companies engaged in the management and
operation of partnerships and real estate investment trusts. The investment
banking activities of Stanger include financial advisory and fairness opinion
services, asset and securities valuations, industry and company research and
analysis, litigation support and expert witness services, and due diligence
investigations in connection with both publicly registered and privately placed
securities transactions.
Stanger, as part of its investment banking business, is regularly engaged
in the valuation of businesses and their securities in connection with mergers,
acquisitions, reorganizations and for estate, tax, corporate and other purposes.
Stanger's valuation practice principally involves partnerships, partnership
securities and the assets typically held through partnerships, such as real
estate, oil and gas reserves, cable television systems and equipment leasing
assets. Stanger was selected because of its experience and reputation in
connection with real estate partnerships, real estate assets and mergers and
acquisitions.
SUMMARY OF MATERIALS CONSIDERED
In the course of Stanger's analysis to render its opinion, Stanger: (i)
reviewed a draft of the Prospectus Supplement related to the offer in
substantially the form which will be distributed; (ii) reviewed your
partnership's financial statements for the years ended December 31, 1996 and
1997, and its unaudited financial statements for the period ended September 30,
1998, which your partnership's management has indicated to be the most current
available financial statements at the time; (iii) reviewed descriptive
information concerning your partnership's real estate assets (the "property")
provided by management, including location, number of units and unit mix or
square footage, age, and amenities; (iv) reviewed summary historical operating
statements for your partnership's property for 1996, 1997 and 1998; (v) reviewed
operating budgets for your partnership's property for 1998, as prepared by your
partnership; (vi) reviewed
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<PAGE> 48
information prepared by management relating to any debt encumbering your
partnership's property; (vii) reviewed information regarding market rental rates
and conditions for similar properties in the general market area of your
partnership's property and other information relating to acquisition criteria
for similar properties; (viii) reviewed internal financial analyses and
forecasts prepared by your partnership of the estimated current net liquidation
value of your partnership; (ix) reviewed information provided by AIMCO
concerning the AIMCO Operating Partnership, the Common OP Units and the
Preferred OP Units; and (x) conducted other studies, analysis and inquiries as
Stanger deemed appropriate.
A summary of the operating budgets per property for the year ended December
31, 1998, which was supplied by your partnership to Stanger, is as follows:
FISCAL 1998 OPERATING BUDGETS
<TABLE>
<CAPTION>
RAVENSWORTH
APARTMENTS
-----------
<S> <C>
Total Revenues.............................................. $ 2,375,722
Operating Expenses.......................................... (1,061,352)
Replacement Reserves -- Net................................. (214,946)
Debt Service................................................ (1,105,428)
Capital Expenditures........................................ 0
-----------
Net Cash Flow..................................... $ (6,004)
===========
</TABLE>
The above budgets at the time they were made were forward-looking
information developed by the general partner of your partnership. Therefore, the
budgets were dependent upon future events with respect to the ability of your
partnership to meet such budget. The budgets incorporated various assumptions
including, but not limited to, lease revenue (including occupancy rates),
various operating expenses, general and administrative expenses, depreciation
expenses, capital expenditures, and working capital levels. While we deemed such
budgets to be reasonable and valid at the date made, there is no assurance that
the assumed facts will be validated or that the circumstances will actually
occur. Any estimate of the future performance of a business, such as your
partnership's business, is forward-looking and based on assumptions some of
which inevitably will prove to be incorrect.
The budget amounts provided above are figures that were not computed in
accordance with GAAP. In particular, items that are categorized as capital
expenditures for purposes of preparing the operating budget are often
re-categorized as expenses when the financial statements are audited and
presented in accordance with GAAP. Therefore, the summary operating budget
presented for fiscal 1998 should not necessarily be considered as indicative of
what the audited operating results for fiscal 1998 will be. For the year ended
December 31, 1998, the partnership expects to report revenues of $2,350,830,
operating expenses of $1,040,488 and replacement reserves and capital
expenditures of $258,429. Based on these estimates, the partnership's net cash
flow before debt service, which we believe provides a better indication of the
partnership's actual operating performance than net cash flow, was less than the
budgeted amounts.
In addition, Stanger discussed with management of your partnership and
AIMCO the market conditions for the property, conditions in the market for
sales/acquisitions of properties similar to that owned by your partnership,
historical, current and projected operations and performance of your
partnership's property and your partnership, the physical condition of your
partnership's property including any deferred maintenance, and other factors
influencing value of your partnership's property and your partnership. Stanger
also performed site inspections of your partnership's property, reviewed local
real estate market conditions, and discussed with property management personnel
conditions in local apartment rental markets and market conditions for sales and
acquisitions of properties similar to your partnership's property.
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SUMMARY OF REVIEWS
The following is a summary of the material reviews conducted by Stanger in
connection with and in support of its Fairness Opinion. The summary of the
opinion and reviews of Stanger set forth in this Prospectus Supplement is
qualified in its entirety by reference to the full text of such opinion.
Property Evaluation. In preparing its Fairness Opinion, Stanger performed a
site inspection of your partnership's property during the third quarter of 1998.
In the course of the site visit, the physical facilities of your partnership's
property were observed, current rental and occupancy information was obtained,
current local market conditions were reviewed, similar competing properties were
identified, and local property management personnel were interviewed concerning
your partnership's property and local market conditions. Stanger also reviewed
and relied upon information provided by your partnership and AIMCO, including,
but not limited to, financial schedules of historical and current rental rates,
occupancies, income, expenses, reserve requirements, cash flow and related
financial information; property descriptive information including unit mix or
square footage; and information relating to the condition of the property,
including any deferred maintenance, capital budgets, status of ongoing or newly
planned property additions, reconfigurations, improvements and other factors
affecting the physical condition of the property improvements.
Stanger also reviewed historical operating statements for your
partnership's property for 1996, 1997, and for the nine month period ending
September 30, 1998, the operating budget for 1998, as prepared by your
partnership, and discussed with management the current and anticipated operating
results of your partnership's property.
In addition, Stanger interviewed management personnel of your partnership
and AIMCO. Such interviews included discussions of conditions in the local
market, economic and development trends affecting your partnership's property,
historical and budgeted operating revenues and expenses and occupancies and the
physical condition of your partnership's property (including any deferred
maintenance and other factors affecting the physical condition of the
improvements), projected capital expenditures and building improvements, the
terms of existing debt, encumbering your partnership's property, and
expectations of management regarding operating results of your partnership's
property.
Stanger also reviewed the acquisition criteria used by owners and investors
in the type of real estate owned by your partnership, utilizing available
published information and information derived from interviews conducted by
Stanger with various real estate owners and investors.
Review of Partnership Liquidation Analysis. Stanger reviewed the
liquidation value calculation prepared by the management of your partnership.
Stanger observed that such liquidation value was based upon the gross property
valuation estimate prepared by management, which in turn is based upon fiscal
year 1997 property income capitalized at capitalization rate of 10.5%. Stanger
further observed that the gross property valuation was adjusted for the
following additional items to achieve the liquidation value of your partnership:
(i) cash, other assets, mortgage indebtedness and other liabilities determined
as of December 31, 1997; (ii) estimated closing costs equal to approximately
2.5% of gross real estate value; and (iii) extraordinary capital expenditure
estimates in the amount of $1,217,055. Stanger observed that your partnership
liquidation value was negative and therefore a minimum price of $100 was set by
AIMCO.
Review of Partnership Going Concern Analysis. Stanger reviewed the going
concern value calculation prepared by management of your partnership. Stanger
observed that such going concern value was based upon the discounted present
value of projected cash flows from the partnership over a ten-year period of
operation which is a standard period for going concern analysis for real
property assets. Such discounted cash flows were based upon year one property
income from the real estate portfolio of $1,350,000 escalated at 3% per annum
for the ten-year projection period. Property income was reduced by: (i)
partnership administrative expenses of $30,000 per annum; (ii) cash reserves;
and (iii) debt service on existing debt through maturity or the end of ten
years, whichever occurs first. For debt which matures during the ten-year
period, a refinancing at an 8% interest rate was assumed due in part to the
substantial leverage on the property. At the end of the ten-year projection
period, the property was assumed to be sold based upon: (i) property income for
the immediately following year capitalized at a capitalization rate of 11.0%;
and (ii) expenses of sale
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<PAGE> 50
estimated at 3% of property value. Stanger observed that the proceeds of sale
were reduced by the estimated debt balance at the end of the tenth year to
provide net proceeds from the sale of your partnership's property.
The resulting cash flows for the ten-year period were discounted to present
value at a discount rate of 40%. Stanger observed that such discount rate was
based upon the portfolio real estate discount rate of 13%, adjusted for leverage
risk and illiquidity risk. Stanger observed that the resulting partnership going
concern value was negative and therefore deemed zero.
Review of Secondary Market Prices. Stanger maintains a database of
secondary market information. Stanger observed for its data that no units of the
partnership were reported traded in the secondary market during 1998.
Comparison of Offer Price to Liquidation Value, Going Concern Value and
Secondary Market Price. Stanger observed that the offer price of $100 per unit
is equal to management's minimum price value, and reflects a $100 premium to
management's estimate of going concern value of $0. Stanger further observed
that investors may select cash, Common OP Units or Preferred OP Units in
exchange for their partnership units or they may elect to continue to hold their
partnership units. Stanger further observed that the Common OP Units will be
priced at $37.63 per unit, an amount which equals the average of the closing
prices for the common shares into which such Common OP Units are convertible for
the 30-trading day period ended March 23, 1999. Furthermore, Stanger observed
that the Preferred OP Units to be issued in the transaction will be based upon
the liquidation preference of $25. Stanger noted that the Preferred OP Units are
redeemable for, at AIMCO's option, either: (i) $25 in cash per Preferred OP
Unit; (ii) common stock of AIMCO based upon a ten-day average price at the time
of the requested redemption; or (iii) commencing with the third year after the
closing of this transaction, preferred stock of AIMCO with a value equal to $25.
Stanger observed that the ten-day average price of the AIMCO common stock is
$36.425, as of March 23, 1999 and therefore an investor receiving AIMCO common
shares in redemption of the Preferred OP Units would receive 0.6863 shares with
a value approximating $25 for each $25 Preferred OP Unit redeemed, based upon
AIMCO's average common share price as of March 23, 1998. Stanger noted that
commencing in the third year, investors redeeming Preferred OP Units may receive
from AIMCO Preferred Stock with a dividend equal to the distribution on the
AIMCO Preferred OP Units. Stanger observed that the distribution on the
Preferred OP Units is set at 8% of $25 and that the average dividend yield on
AIMCO's outstanding C, D, G and H Preferred Shares approximates 10.1% as of
March 23, 1999. Stanger noted that, based upon the cash dividend yield on the
AIMCO Preferred Shares identified above as of March 23, 1999, investors would
receive Preferred Shares with a value of approximately $19.80 for each $25
Preferred OP Unit if such redemption occurred after the second year following
the closing of the transaction. Stanger further observed that the above analysis
does not take into consideration the present value of the earnings on the tax
deferral an investor may realize as the result of selecting Preferred OP Units
in lieu of cash in a taxable transaction.
In addition to the above analysis, Stanger prepared an independent estimate
of net asset value, going concern value and liquidation value per unit. Stanger
has advised AIMCO that Stanger's estimates of net asset value, liquidation value
and going concern value are based upon Stanger's independent estimate of
property income, a direct capitalization rate of 9.75%, transaction costs of
2.5% to 5.0%, growth rates of 3% and terminal capitalization rate of 10.25%.
Stanger has advised us that the direct capitalization rate represents Stanger's
estimate of the capitalization rate applicable to its estimate of property
income and is based upon Stanger's independent estimate of the direct
capitalization rate for such property based upon such property's age, condition
and location. Stanger further advised us that the terminal capitalization rate
is the capitalization rate utilized in Stanger's going concern value estimate
which is applied to Stanger's estimate of property income in the eleventh year
to establish the value of the property at the end of the tenth year. Stanger has
advised us that Stanger estimated the terminal capitalization rate at a 50 basis
point premium to the direct capitalization rate estimate for the property.
Stanger utilized deferred maintenance estimates derived from the Adjusters
International, Inc. reports in the calculation of net asset value, liquidation
value and going concern value. Stanger advised us that Stanger adjusted its
estimate of net asset value and liquidation value for the cost of above market
debt using a 7% interest rate. With respect to the going concern value estimate
prepared by Stanger, Stanger advised AIMCO that a ten-year projection period and
a discount rate of 40% was utilized. Such discount rate reflects the risk
associated with real estate, leverage and a limited
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<PAGE> 51
partnership investment. The 40% discount rate was based upon the property's
estimated internal rate of return derived from the discounted cash flow
analysis, (13% as described above), plus a premium reflecting the additional
risk associated with mortgage debt equal to the property value. Stanger's
estimates were based in part upon information provided by us. Stanger relied
upon the deferred maintenance estimates, property descriptions, unit
configurations, allocation among partners, and other data provided by us.
Stanger's analyses were based on balance sheet data as of September 30, 1998.
Stanger's review also included a site visit, review of rental rates and
occupancy at the properties as well as competing properties. Stanger's estimate
of net asset value, going concern value and liquidation value per unit were $0,
$0, and $0 representing discounts to the offer price of $100. See "Fairness of
the Offer -- Comparison of Consideration to Alternative Consideration."
CONCLUSIONS
Stanger concluded, based upon its analysis of the foregoing and the
assumptions, qualifications and limitations stated below, as of the date of the
Fairness Opinion, that the offer consideration to be paid for the units in
connection with the offer is fair to the unitholders from a financial point of
view. Stanger has rendered similar fairness opinions with regard to certain
other exchange offers being made by the AIMCO Operating Partnership. Stanger
rendered the opinions only as to the individual fairness of the offer
consideration in each proposed exchange offer. The Fairness Opinion does not
address the fairness of all possible acquisitions of interests in your
partnership. In addition, the Fairness Opinion will not be revised to reflect
the actual participation in the offer.
ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS
In rendering the Fairness Opinion, Stanger relied upon and assumed, without
independent verification, the accuracy and completeness of all financial
information and data, and all other reports and information contained in this
Prospectus Supplement or that were provided, made available, or otherwise
communicated to Stanger by your partnership, AIMCO, or the management of the
partnership's property. Stanger has not performed an independent appraisal,
engineering study or environmental study of the assets and liabilities of your
partnership. Stanger relied upon the representations of your partnership and
AIMCO concerning, among other things, any environmental liabilities, deferred
maintenance and estimated capital expenditure and replacement reserve
requirements, the determination and valuation of non-real estate assets and
liabilities of your partnership, the allocation of your partnership's net values
between your general partner (which is our subsidiary), special limited partner
and limited partners of your partnership, the terms and conditions of any debt
encumbering the partnership's property, and the transaction costs and fees
associated with a sale of the property. Stanger also relied upon the assurance
of your partnership, AIMCO, and the management of the partnership's property
that any financial statements, budgets, pro forma statements, projections,
capital expenditure estimates, debt, value estimates and other information
contained in this Prospectus Supplement or provided or communicated to Stanger
were reasonably prepared and adjusted on bases consistent with actual historical
experience, are consistent with the terms of your partnership's agreement of
limited partnership, and reflect the best currently available estimates and good
faith judgments; that no material changes have occurred in the value of the
partnership's property or other balance sheet assets and liabilities or other
information reviewed between the date of such information provided and the date
of the Fairness Opinion; that your partnership, AIMCO, and the management of the
partnership's property are not aware of any information or facts that would
cause the information supplied to Stanger to be incomplete or misleading; that
the highest and best use of the partnership's property is as improved; and that
all calculations were made in accordance with the terms of your partnership's
agreement of limited partnership.
Stanger was not requested to, and therefore did not: (i) select the offer
consideration or the method of determining the offer consideration; (ii) make
any recommendation to your partnership or its partners with respect to whether
to accept or reject the proposed offer or whether to accept the cash, Preferred
OP Units or Common OP Units if the offer is accepted; (iii) solicit any third
party indications of interest in acquiring the assets of your partnership or all
or any part of your partnership; or (iv) express any opinion as to (a) the tax
consequences of the offer to unitholders, (b) the terms of your partnership's
agreement of limited partnership or the terms of any agreements or contracts
between your partnership or AIMCO; (c) AIMCO's
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<PAGE> 52
or the general partner's business decision to effect the offer, or alternatives
to the offer, (d) the amount or allocation of expenses relating to the offer
between AIMCO and your partnership or tendering unitholders; (e) the relative
value of the cash, Preferred OP Units or Common OP Units to be issued in
connection with the offer; and (f) any adjustments made to determine the offer
consideration and the net amounts distributable to the unitholders, including
but not limited to, balance sheet adjustments to reflect your partnership's
estimate of the value of current net working capital balances, reserve accounts,
and liabilities, and adjustments to the offer consideration for distributions
made by your partnership subsequent to the date of the offer.
Stanger is not expressing any opinions as to the fairness of any terms of
the offer other than the offer consideration for the units, nor did Stanger
address the fairness of all possible acquisitions of interests in the
partnership. The opinion will not be revised to reflect the actual results of
the offer. Stanger's opinion is based on business, economic, real estate and
capital market, and other conditions as of the date of its analysis and
addresses the offer in the context of information available as of the date of
its analysis. Events occurring after such date and before the closing of the
proposed offer could affect the partnership's property or the assumptions used
in preparing the Fairness Opinion. Stanger has no obligation to update the
Fairness Opinion on the basis of subsequent events.
In connection with preparing the Fairness Opinion, Stanger was not engaged
to, and consequently did not, prepare any written or oral report or compendium
of its analysis for internal or external use beyond the report set forth in
Appendix A.
COMPENSATION AND MATERIAL RELATIONSHIPS
Stanger has been retained by AIMCO to provide fairness opinions with
respect to your partnership and other partnerships which are or will be the
subject of similar offers. Stanger will be paid a fee by AIMCO of $9,000 with
respect to your partnership. The estimated aggregate fee payable to Stanger in
connection with all affiliated partnerships is estimated at $1,510,000, plus
out-of-pocket expenses estimated at $61,000. In addition, Stanger is entitled to
reimbursement for reasonable legal, travel and out-of-pocket expenses incurred
in making the site visits and preparing the Fairness Opinion, and is entitled to
indemnification against certain liabilities, including certain liabilities under
Federal securities laws. No portion of Stanger's fee is contingent upon
consummation of the offer or the content of Stanger's opinion. Stanger was
engaged by AIMCO during 1997 to represent AIMCO in negotiations to acquire
interests in a real estate limited partnership. Such transaction was never
consummated and no fee was ever paid to Stanger in connection with such proposed
transaction. AIMCO and its affiliates may retain the services of Stanger in the
future. Any such future services could relate to this offer, some or all of the
concurrent offers, or a completely separate transaction.
YOUR PARTNERSHIP
GENERAL
Ravensworth Associates Limited Partnership, is a Massachusetts limited
partnership which completed a private placement of units in 1983. Each unit was
initially sold at a price of $9,600. Insignia acquired the general partner of
your partnership in November 1997. AIMCO acquired Insignia in October 1998.
There are currently a total of 59 limited partners of your partnership and a
total of 50 units of your partnership outstanding. Your partnership is in the
business of owning and managing residential housing. Currently, your partnership
owns and manages the property described below. Your partnership has no
employees. Your partnership's principal executive offices are located at 1873
South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone
number at that address is (303) 757-8101.
YOUR PARTNERSHIP AND ITS PROPERTY
Your partnership was formed on June 21, 1983 for the purpose of owning an
apartment property located in Annandale, Virginia, known as "Ravensworth Tower
Apartments." Your partnership's property is owned by the partnership but is
subject to a mortgage. The property was built in 1974 and consists of 219
apartment
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units. There are 144 one-bedroom apartments and 75 two-bedroom apartments. Your
partnership's property had an average occupancy rate of approximately 94.81% in
1998.
Your partnership's property provides residents with a number of amenities
and services, such as 24-hour desk service, exercise room and/or sauna, and
party or meeting rooms. Nearly all apartment units are wired for cable
television, and many apartment units also offer one or more additional features,
such as washer/ dryer, microwave, fireplace, and patio/balcony.
Presently, there are no plans for any major renovations or improvements for
the property. Budgeted renovations for 1999 total $1,217,055 and are intended to
be paid for out of cash flow or borrowings. Renovation items include heating,
ventilation and air conditioning systems, plumbing, hot water system,
electrical, siding trim facia, exterior paint, stairwells, balconies, sidewalks,
drives and parking lots, windows, exterior lighting, landscape and irrigation,
parking, life support system, pool repair, and elevator service.
Set forth below are the average rents for the apartments for the last five
years:
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C>
$825 $786 $764 $754 $726
</TABLE>
The apartments are being depreciated for federal income tax purposes using
the accelerated cost recovery method. Depreciation is computed principally by
the straight-line and accelerated methods over estimated lives of 3 to 40 years.
Currently, the real estate taxes on the property are $168,664 of
$13,712,560 of assessed valuation with a current yearly tax rate of 1.23%. When
the proposed improvements are made it is anticipated that the yearly tax rate
may increase by approximately 1.25% of such improvements.
PROPERTY MANAGEMENT
Your partnership's property is managed by an entity which is a wholly owned
subsidiary of AIMCO. Pursuant to the management agreement between the property
manager and your partnership, the property manager operates your partnership's
property, establishes rental policies and rates and directs marketing
activities. The property manager also is responsible for maintenance, the
purchase of equipment and supplies, and the selection and engagement of all
vendors, suppliers and independent contractors.
INVESTMENT OBJECTIVES AND POLICIES; SALE OR FINANCING OF INVESTMENTS
Under your partnership's agreement of limited partnership, your partnership
is not permitted to raise new equity and reinvest cash in new properties.
Consequently, your partnership is limited in its ability to expand its
investment portfolio. Your partnership will terminate on December 31, 2013
unless earlier dissolved. Your partnership has no present intention to
liquidate, sell, finance or refinance your partnership's property within any
specified time period.
Generally, your partnership is authorized to acquire, develop, improve, own
and operate your partnership's property as an investment and for income
producing purposes. The investment portfolio of your partnership is limited to
the assets acquired with the initial equity raised through the sale of units to
the limited partners of your partnership or the assets initially contributed to
your partnership by the limited partners, as well as the debt financing obtained
by your partnership within the established borrowing restrictions.
An investment in your partnership is a finite life investment, with the
partners to receive regular cash distributions out of your partnership's
distributable cash flow, if available, and to receive cash distributions upon
liquidation of your partnership's real estate investments, if available.
In general, your general partner (which is our subsidiary) regularly
evaluates the partnership's property by considering various factors, such as the
partnership's financial position and real estate and capital markets conditions.
The general partner monitors the property's specific locale and sub-market
conditions (including
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stability of the surrounding neighborhood) evaluating current trends,
competition, new construction and economic changes. The general partner oversees
each asset's operating performance and continuously evaluates the physical
improvement requirements. In addition, the financing structure for each property
(including any prepayment penalties), tax implications, availability of
attractive mortgage financing to a purchaser, and the investment climate are all
considered. Any of these factors, and possibly others, could potentially
contribute to any decision by the general partner to sell, refinance, upgrade
with capital improvements or hold a particular partnership property. If rental
market conditions improve, the level of distributions might increase over time.
It is possible that the private resale market for properties could improve over
time, making a sale of the partnership's property in a private transaction at
some point in the future a more viable option than it is currently. After taking
into account the foregoing considerations, your general partner is not currently
seeking a sale of your partnership's property primarily because it expects the
property's operating performance to improve in the near term. In making this
assessment, your general partner noted that occupancy and rental rates at the
property were 95% and $821, respectively, at December 31, 1998, compared to 94%
and $825, respectively, at December 31, 1997. The general partner expects rental
rates to improve in the near future as a result of the pending improvements in
addition to the property's desirable location. In addition, the general partner
noted that it expects to spend approximately $1,217,055 for capital improvements
at the property in 1999-2000 to repair and improve the property's HVAC,
plumbing, hot water system, electrical, siding, exterior paint, stairwells,
balconies, parking lots. These expenditures are expected to improve the
desirability of the property to tenants. The general partner does not believe
that a sale of the property at the present time would adequately reflect the
property's future prospects. Another significant factor considered by your
general partner is the likely tax consequences of a sale of the property for
cash. Such a transaction would likely result in tax liabilities for many limited
partners. The general partner has not received any recent indication of interest
or offer to purchase the property.
CAPITAL REPLACEMENT
Your partnership has an ongoing program of capital improvements,
replacements and renovations, including roof replacements, kitchen and bath
renovations, balcony repairs (where applicable), replacement of various building
systems and other replacements and renovations in the ordinary course of
business. All capital improvement and renovation costs are expected to be paid
from operating cash flows, cash reserves, or from short-term or long-term
borrowings. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations of Your Partnership."
BORROWING POLICIES
Your partnership's agreement of limited partnership allows your partnership
to incur debt. As of December 31, 1998, your partnership had a current mortgage
note outstanding of $9,730,882, payable to FNMA, which bears interest at a rate
of 8.38%. The mortgage debt is due in November 2003. Your partnership also has a
second mortgage note outstanding of $2,966,882, on the same terms as the current
mortgage note. Your partnership's agreement of limited partnership also allows
the general partner of your partnership to lend funds to your partnership. As of
December 31, 1998, your general partner had no outstanding loans to your
partnership.
COMPETITION
There are other residential properties within the market area of your
partnership's property. The number and quality of competitive properties in such
an area could have a material effect on the rental market for the apartments at
your partnership's property and the rents that may be charged for such
apartments. While we are a significant factor in the United States in the
apartment industry, competition for apartments is local.
LEGAL PROCEEDINGS
Your partnership is party to a variety of legal proceedings related to its
ownership of the partnership's property and management and leasing business,
respectively, arising in the ordinary course of the business, which are not
expected to have a material adverse effect on your partnership.
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<PAGE> 55
HISTORY OF THE PARTNERSHIP
Your partnership sold $3,648,000 of limited partnership units in 1983 for
$9,600 per unit. Your partnership currently owns one apartment property.
Your partnership used the funds raised to purchase its property and it has
expended the funds so raised many years ago. Your partnership currently owns the
property described herein, which is subject to a substantial mortgage. Your
general partner (which is our subsidiary) has not experienced any material
adverse financial developments from January 1, 1997 through the present.
Under your partnership's agreement of limited partnership, the term of the
partnership will continue until December 31, 2013, unless sooner terminated as
provided in the agreement or by law. Limited partners could, as an alternative
to tendering their units, take a variety of possible actions, including voting
to liquidate the partnership or amending the agreement of limited partnership to
authorize limited partners to cause the partnership to merge with another entity
or engage in a "roll-up" or similar transaction.
FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER OF YOUR PARTNERSHIP
Under applicable law, your general partner (which is our subsidiary) is
accountable to your partnership as a fiduciary. Under your partnership's
agreement of limited partnership, the general partners of your partnership and
their affiliates will not incur any liability, responsibility or accountability
for damages or otherwise to your partnership or any limited partner for any acts
or omissions performed or omitted by any of them in good faith on behalf of your
partnership and in a manner reasonably believed by them to be within the scope
of the authority granted to them by your partnership's agreement of limited
partnership and in the best interests of your partnership if they are not guilty
of negligence or willful misconduct with respect to such acts of omissions. As a
result, unitholders might have a more limited right of action in certain
circumstances than they would have in the absence of such a provision in your
partnership's agreement of limited partnership. The general partner of your
partnership is majority-owned by AIMCO. See "Conflicts of Interest."
Your partnership will indemnify the general partners for any act performed
by them within the scope of the authority conferred upon them by your
partnership's agreement of limited partnership; provided, however, that such
indemnity will be payable only if the general partners acted in good faith and
in a manner they reasonably believed to be in, or not opposed to, the best
interests of your partnership and the partners and has no reasonable grounds to
believe that their conduct was negligent or unlawful. If a general partner is
liable for negligence or misconduct in the performance of its duty to your
partnership, it will not be indemnified unless, and only to the extent that, the
court in which such action or suit was brought determines that in view of all
the circumstances of the case, despite the adjudication of liability, the
general partner is fairly and reasonably entitled to indemnity for those
expenses which the court deems proper. Any indemnity will be paid from, and only
to the extent of, partnership assets. As part of its assumption of liabilities
in the consolidation, AIMCO will indemnify the general partner of your
partnership and their affiliates for periods prior to and following the
consolidation to the extent of the indemnity under the terms of your
partnership's agreement of limited partnership and applicable law.
Your partnership's agreement of limited partnership does not limit the
amount or type of insurance your partnership may purchase to cover the liability
of the general partners of your partnership.
DISTRIBUTIONS AND TRANSFERS OF UNITS
Distributions
The original cost per unit was $9,600. From 1993 through 1998 your
partnership has paid no distributions.
Transfers
The units are not listed on any national securities exchange or quoted on
the NASDAQ System, the Electronic Bulletin Board or the "pink sheets," and there
is no established public trading market for the units.
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<PAGE> 56
Secondary sales activity for the units has been limited and sporadic. The
general partner of your partnership monitors transfers of the units (a) because
the admission of the transferee as a substitute limited partner in your
partnership require the consent of the general partner of your partnership under
your partnership's agreement of limited partnership, and (b) in order to track
compliance with safe harbor provisions to avoid treatment as a "publicly traded
partnership" for tax purposes. However, the general partner of your partnership
does not monitor or regularly receive or maintain information regarding the
prices at which secondary sale transactions in the units have been effectuated.
The general partner of your partnership estimates, based solely on the transfer
records of your partnership (or your partnership's transfer agent), that there
have been no sale transactions.
BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP
Through subsidiaries, AIMCO currently owns no interest in your partnership,
including no units held by us and the interest held by us, as general partner of
your partnership. Except as set forth above, neither the AIMCO Operating
Partnership, nor, to the best of its knowledge, any of its affiliates, (i)
beneficially own or have a right to acquire any units, (ii) have effected any
transactions in the units in the past two years, or (iii) have any contract,
arrangement, understanding or relationship with any other person with respect to
any securities of your partnership, including, but not limited to, contracts,
arrangements, understandings or relationships concerning transfer or voting
thereof, joint ventures, loan or option arrangements, puts or calls, guarantees
of loans, guarantees against loss or the giving or withholding of proxies.
COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES
The following table shows, for each of the years indicated, compensation
paid to your general partner and its affiliates on a historical basis, and on a
pro forma basis assuming that all of the units sought in our offer had been
acquired at the beginning of each period:
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
--------------------------------------------------- ---------------------------------------------------
PARTNERSHIP PROPERTY PARTNERSHIP PROPERTY
FEES AND MANAGEMENT FEES AND MANAGEMENT
YEAR EXPENSES FEES DISTRIBUTIONS TOTAL EXPENSES FEES DISTRIBUTIONS TOTAL
---- ----------- ---------- ------------- -------- ----------- ---------- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $ 3,000 $107,406 $ 0 $110,406 $ 3,000 $107,406 $ 0 $110,406
1996 3,000 110,013 0 113,013 3,000 110,013 0 113,013
1997 2,500 96,770 0 99,270 2,500 96,770 0 99,270
1998 24,155 118,622 0 142,777 24,155 118,622 0 142,777
</TABLE>
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<PAGE> 57
SELECTED FINANCIAL INFORMATION
OF YOUR PARTNERSHIP
<TABLE>
<CAPTION>
RAVENSWORTH ASSOCIATES LIMITED PARTNERSHIP
---------------------------------------------------------------------------------
FOR THE YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
----------------- -------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
------- ------- ------- ------- ------------ ------------ -----------
IN THOUSANDS, EXCEPT UNIT DATA
<S> <C> <C> <C> <C> <C> <C> <C>
Cash and Cash
Equivalents......... $ 486 $ 537 $ 578 $ 548 $ 859,974 $ 839,868 $ 919,013
Land & Building....... 14,230 13,977 13,992 13,793 13,709,572 13,642,588 13,550,830
Accumulated
Depreciation........ (7,505) (7,019) (7,141) (6,655) (10,970,462) (10,343,468) (9,720,855)
Other Assets.......... 346 377 348 401 73,070 91,755 119,645
------- ------- ------- ------- ------------ ------------ -----------
Total
Assets.... $ 7,557 $ 7,872 $ 7,777 $ 8,087 3,672,154 4,230,743 4,868,633
======= ======= ======= ======= ============ ============ ===========
Notes Payable......... $12,833 $12,965 $12,933 $13,057 13,066,882 13,066,882 13,066,882
Other Liabilities..... 299 175 178 168 75,871 76,862 81,826
------- ------- ------- ------- ------------ ------------ -----------
Total
Liabilities.. $13,132 $13,140 $13,111 $13,225 13,142,753 13,143,744 13,148,708
------- ------- ------- ------- ------------ ------------ -----------
Partners Capital
(Deficit)........... $(5,575) $(5,268) $(5,334) $(5,138) $ (9,470,599) $ (8,913,001) $(8,280,075)
======= ======= ======= ======= ============ ============ ===========
</TABLE>
<TABLE>
<CAPTION>
RAVENSWORTH ASSOCIATES LIMITED PARTNERSHIP
----------------------------------------------------------------------------
FOR THE YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
----------------- --------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
------- ------- ------- ------- ---------- ---------- ----------
IN THOUSANDS, EXCEPT UNIT DATA
<S> <C> <C> <C> <C> <C> <C> <C>
Rental Revenue............. $ 1,583 $ 1,617 $ 2,168 $ 2,065 $2,006,907 $1,981,110 $1,908,600
Other Income............... 155 125 162 195 191,862 165,230 190,053
------- ------- ------- ------- ---------- ---------- ----------
Total Revenue.... $ 1,738 $ 1,742 $ 2,330 $ 2,260 2,198,769 2,146,340 2,098,653
------- ------- ------- ------- ---------- ---------- ----------
Operating Expenses......... $ 638 $ 539 $ 750 $ 688 $ 756,111 $ 795,078 $ 775,843
General & Administrative... 40 50 74 76 39,706 34,740 32,973
Depreciation............... 364 364 486 476 626,994 622,613 615,082
Interest Expense........... 752 738 982 1,225 1,155,000 1,155,000 1,155,000
Property Taxes............. 127 124 166 165 178,554 171,835 156,356
Other...................... 57 57 68 89
------- ------- ------- ------- ---------- ---------- ----------
Total Expenses... $ 1,978 $ 1,872 $ 2,526 $ 2,719 2,756,365 2,779,266 2,735,254
------- ------- ------- ------- ---------- ---------- ----------
Net income before
extraordinary items...... $ (240 $ (130) $ (196) $ (459) $ (557,596) $ (632,926) $ (636,601)
Extraordinary items........ -- -- -- -- -- -- --
------- ------- ------- ------- ---------- ---------- ----------
Net Income................. $ (240) $ (130) $ (196) $ (459) $ (557,596) $ (632,926) $ (636,601)
======= ======= ======= ======= ========== ========== ==========
</TABLE>
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<PAGE> 58
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OF YOUR PARTNERSHIP
OVERVIEW
The following discussion and analysis of the results of operations and
financial condition of Your Partnership should be read in conjunction with the
audited financial statements of Your Partnership included herein.
RESULTS OF OPERATIONS
Comparison of the Nine Months Ended September 30, 1998 to the Nine Months Ended
September 30, 1997
NET INCOME
Your Partnership incurred a net loss of $240,765 for the nine months ended
September 30, 1998, compared to $129,694 for the nine months ended September 30,
1997. The increase in net loss of $111,071, or 85.64% was primarily the result
of increased operating expenses. This factor discussed in more detail in the
following paragraph.
OPERATING EXPENSES
Partnership Property operating expenses, primarily consisting of utilities
(net of reimbursements received from tenants), repairs and maintenance,
marketing, payroll, and taxes, totaled $823,096 for the nine months ended
September 30, 1998, compared to $731,018 for the nine months ended September 30,
1997, an increase of $92,078, or 12.6%. This increase is due to several factors.
The increase in repairs and maintenance expenses in the current year was the
result of improvements made in the current year. In addition, marketing and
advertising costs increased as management more intensively marketed the property
in newspapers and periodicals.
As part of the ongoing business plan of your partnership, the general
partner monitors the rental market environment of your partnership's investment
property to assess the feasibility of increasing rents, maintaining or
increasing occupancy levels and protecting your partnership from increases in
expenses. As part of this plan, the general partner attempts to protect your
partnership from the burden of inflation-related increases in expenses by
increasing rents and maintaining a high overall occupancy level. However, due to
changing market conditions, which can result in the use of rental concessions
and rental reductions to offset softening market conditions, there is no
guarantee that the general partner will be able to sustain such a plan.
Comparison of the Year Ended December 31, 1997 to the Year Ended December 31,
1996
NET INCOME
Your Partnership recognized net loss of $195,841 for the year ended
December 31, 1997, compared to $459,578 for the year December 31, 1996. The
decrease in net loss of $263,737, or 57.39% was primarily due to a decrease in
interest expense. This factor is discussed in more detail in the following
paragraph.
INTEREST EXPENSE
Interest expense decreased $243,802 (19.9%) as compared to the prior year.
This decrease was due to the Partnership refinancing its existing debt in
October 1996 at lower interest rates.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1998, Your Partnership had $485,939 in cash and cash
equivalents. Your Partnership's principal demands for liquidity include normal
operating activities, payments of principal and interest on outstanding debt,
capital improvements, and distributions paid to limited partners. The
sufficiency of existing liquid assets to meet future liquidity and capital
expenditure requirements is directly related to the
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<PAGE> 59
level of capital expenditures required at the property to adequately maintain
the physical assets and meet other operating needs of the partnership. Such
assets are currently thought to be sufficient for any near-term needs of the
partnership. Management believes that your partnership has adequate sources of
cash to finance its operations, both on a short-term and long-term basis.
Presently, there are no plans for any major renovations or improvements for
the property. Budgeted renovations for 1999 total $1,217,055 and are intended to
be paid for out of cash flow or borrowings. Renovation items include heating,
ventilation and air conditioning systems, plumbing, hot water system,
electrical, siding trim facia, exterior paint, stairwells, balconies, sidewalks,
drives and parking lots, windows, exterior lighting, landscape and irrigation,
parking, life support system, pool repair, and elevator service.
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<PAGE> 60
THE OFFER
TERMS OF THE OFFER; EXPIRATION DATE
We are offering to acquire up to 25% of the outstanding 50 units of your
partnership (up to 12.50 units) for consideration per unit of (i) 4.00 Preferred
OP Units, (ii) 2.75 Common OP Units, or (iii) $100 in cash. If you tender units
pursuant to our offer, you may choose to receive any of such forms of
consideration for your units or any combination of such forms of consideration.
The purchase price per unit will automatically be reduced by the aggregate
amount of distributions per unit, if any, made by your partnership to you on or
after the commencement of our offer and prior to the date on which we acquire
your units pursuant to our offer.
Upon the terms and subject to the conditions of our offer set forth herein,
the AIMCO Operating Partnership will accept (and thereby purchase) units that
are validly tendered prior to the expiration of the offer and not withdrawn in
accordance with the procedures set forth in "-- Withdrawal Rights." Our offer
will expire at 5:00 p.m., New York City time, on June 4, 1999, unless the AIMCO
Operating Partnership in its sole discretion, extends the offer. See
"-- Extension of Tender Period; Termination; Amendment" for a description of the
AIMCO Operating Partnership's right to extend the period of time during which
the offer is open and to amend or terminate the offer.
If, prior to the expiration of the offer, the AIMCO Operating Partnership
increases the offer consideration, everyone whose units are accepted in the
offer will receive the increased consideration, regardless of whether their
units were tendered before or after the increase in the offer consideration.
The AIMCO Operating Partnership will, upon the terms and subject to the
conditions of the offer, accept for payment and pay for all units validly
tendered and not withdrawn prior to the expiration of our offer (subject to
proration as described below).
Our offer is conditioned on the satisfaction of certain conditions. Our
offer is not conditioned upon any minimum amount of units being tendered. See
"-- Conditions of the Offer," which sets forth in full the conditions of our
offer. The AIMCO Operating Partnership reserves the right (but is not
obligated), in its sole discretion, to waive any or all of those conditions. If,
on or prior to the expiration of the offer, any or all of the conditions have
not been satisfied or waived, the AIMCO Operating Partnership reserves the right
to (i) decline to purchase any of the units tendered, terminate the offer and
return all tendered units, (ii) waive all the unsatisfied conditions and
purchase all units validly tendered, (iii) extend the offer and, subject to the
right of unitholders to withdraw units until the expiration of the offer, retain
the units that have been tendered during the period or periods for which the
offer is extended, and (iv) amend the offer.
For administrative purposes, the transfer of units tendered pursuant to our
offer will be deemed to take effect as of January 1, 1999 (subject to proration
as described below), although you will be entitled to retain any distributions
you may have received after such date and prior to our commencement of this
offer.
This offer is being mailed to the persons shown by your partnership's
records to have been limited partners or, in the case of units owned of record
by IRAs and qualified plans, beneficial owners of units, as of March 26, 1999.
ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS
Upon the terms and subject to the conditions of the offer, the AIMCO
Operating Partnership will purchase by accepting for payment and will pay for
all units (subject to proration as described below) which are validly tendered
and not withdrawn prior to the expiration of the offer as promptly as
practicable following the expiration of the offer. A beneficial owner of units
whose units are owned of record by an individual retirement account or other
qualified plan will not receive direct payment of the offer consideration.
Instead, payment will be made to the custodian of such account or plan. In all
cases, payment for units purchased pursuant to the offer will be made only after
timely receipt by the Information Agent of a properly completed and duly
executed Letter of Transmittal and any other documents required by the Letter of
Transmittal. The
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<PAGE> 61
offer consideration shall be reduced by any interim distributions made by your
partnership between the commencement, and the expiration of the offer. See
"-- Procedure for Tendering Units." UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID
ON THE OFFER PRICE BY REASON OF ANY DELAY IN MAKING SUCH PAYMENT.
For purposes of the offer, the AIMCO Operating Partnership will be deemed
to have accepted for payment pursuant to the offer, and thereby purchased,
validly tendered units if, as and when the AIMCO Operating Partnership gives
verbal or written notice to the Information Agent of its acceptance of those
units for payment pursuant to the offer. Payment for units accepted for payment
pursuant to the offer will be made through the Information Agent, which will act
as agent for tendering unitholders for the purpose of receiving cash payments
from the AIMCO Operating Partnership and transmitting cash payments to tendering
unitholders. OP Units will be issued directly by the AIMCO Operating Partnership
to those unitholders who elect to receive OP Units pursuant to the offer.
If any tendered units are not accepted for payment for any reason, the
Letter of Transmittal with respect to such units not purchased may be destroyed
by the AIMCO Operating Partnership or its agent. If for any reason, acceptance
for payment of, or payment for, any units tendered pursuant to the offer is
delayed or the AIMCO Operating Partnership is unable to accept for payment,
purchase or pay for units tendered pursuant to the offer, then, without
prejudice to the AIMCO Operating Partnership's rights under "-- Conditions of
the Offer," the Information Agent may, nevertheless, on behalf of the AIMCO
Operating Partnership retain tendered units. However, any tendered units may be
withdrawn at any time prior to our accepting them for payment. The AIMCO
Operating Partnership has an obligation under Rule 14e-1(c) under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), to pay the offer
consideration in respect of units tendered or return those units promptly after
termination or withdrawal of the offer.
The AIMCO Operating Partnership reserves the right to transfer or assign,
in whole or in part, to one or more of its affiliates, the right to purchase
units tendered pursuant to the offer, but no such transfer or assignment will
relieve the AIMCO Operating Partnership of its obligations under the offer or
prejudice your right to receive payment for units validly tendered and accepted
for payment pursuant to the offer.
PROCEDURE FOR TENDERING UNITS
Valid Tender
To validly tender units pursuant to the offer, a properly completed and
duly executed Letter of Transmittal and any other documents required by such
Letter of Transmittal must be received by the Information Agent, at its address
set forth on the back cover of this Prospectus Supplement, on or prior to the
expiration of the offer. You may tender all or any portion of your units.
Signature Requirements
IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER OF THE
UNITS AND PAYMENT IS TO BE MADE DIRECTLY TO THAT HOLDER, THEN NO SIGNATURE
GUARANTEE IS REQUIRED ON THE LETTER OF TRANSMITTAL. Similarly, if the units are
tendered for the account of a member firm of a registered national securities
exchange, a member of the National Association of Securities Dealers, Inc. or a
commercial bank, savings bank, credit union, savings and loan association or
trust company having an office, branch or agency in the United States (each an
"Eligible Institution"), no signature guarantee is required on the Letter of
Transmittal. However, in all other cases, all signatures on the Letter of
Transmittal must be guaranteed by an Eligible Institution.
In order to participate in the offer, you must validly tender and not
withdraw your units prior to the expiration of the offer.
THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED
DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING HOLDER OF UNITS, AND
DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION
AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS
RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY
DELIVERY.
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<PAGE> 62
Appointment as Proxy
By executing the Letter of Transmittal, you will irrevocably appoint the
AIMCO Operating Partnership and its designees as your proxies (in the manner set
forth in the Letter of Transmittal), each with full power of substitution, to
the fullest extent of your rights with respect to your units tendered and
accepted for payment by the AIMCO Operating Partnership. Each such proxy shall
be considered coupled with an interest in the tendered units. Such appointment
will be effective when, and only to the extent that, the AIMCO Operating
Partnership accepts the tendered units for payment. Upon such acceptance for
payment, all prior proxies given by you with respect to such units will, without
further action, be revoked, and no subsequent proxies may be given (and if given
will not be effective). The AIMCO Operating Partnership and the designees of the
AIMCO Operating Partnership will, as to those units, be empowered to exercise
all of your voting and other rights as they, in their sole discretion, may deem
proper at any meeting of unitholders, by written consent or otherwise. The AIMCO
Operating Partnership reserves the right to require that, in order for units to
be deemed validly tendered, immediately upon the AIMCO Operating Partnership's
acceptance for payment for the units, the AIMCO Operating Partnership must be
able to exercise full voting rights with respect to the units, including voting
at any meeting of unitholders then scheduled or acting by written consent
without a meeting. By executing the Letter of Transmittal, you agree to execute
all such documents and take such other actions as shall be reasonably required
to enable the units tendered to be voted in accordance with the directions of
the AIMCO Operating Partnership. The proxy and power of attorney granted to the
AIMCO Operating Partnership upon your execution of the Letter of Transmittal
will remain effective and be irrevocable for a period of ten years following the
termination of the offer.
Power of Attorney
By executing a Letter of Transmittal, you also irrevocably constitute and
appoint the AIMCO Operating Partnership and its managers and designees as your
attorneys-in-fact, each with full power of substitution, to the full extent of
your rights with respect to the units tendered by you and accepted for payment
by the AIMCO Operating Partnership. Such appointment will be effective when, and
only to the extent that, the AIMCO Operating Partnership pays for your units.
You agree not to exercise any rights pertaining to the tendered units without
the prior consent of the AIMCO Operating Partnership. Upon such payment, all
prior powers of attorney granted by you with respect to such units will, without
further action, be revoked, and no subsequent powers of attorney may be granted
(and if granted will not be effective). Pursuant to such appointment as
attorneys-in-fact, the AIMCO Operating Partnership and its managers and
designees each will have the power, among other things, (i) to transfer
ownership of such units on the partnership books maintained by your general
partner (which is our subsidiary) (and execute and deliver any accompanying
evidences of transfer and authenticity any of them may deem necessary or
appropriate in connection therewith), (ii) upon receipt by the Information Agent
of the offer consideration, to become a substituted limited partner, to receive
any and all distributions made by your partnership on or after the date on which
the AIMCO Operating Partnership acquires such units, and to receive all benefits
and otherwise exercise all rights of beneficial ownership of such units in
accordance with the terms of our offer, (iii) to execute and deliver to the
general partner of your partnership a change of address form instructing the
general partner to send any and all future distributions to which the AIMCO
Operating Partnership is entitled pursuant to the terms of the offer in respect
of tendered units to the address specified in such form, and (iv) to endorse any
check payable to you or upon your order representing a distribution to which the
AIMCO Operating Partnership is entitled pursuant to the terms of our offer, in
each case, in your name and on your behalf.
Assignment of Interest in Future Distributions and All Other Rights, Etc.
If you tender units, you will agree to irrevocably sell, assign, transfer,
convey and deliver to, or upon the order of, the AIMCO Operating Partnership,
all of your right, title and interest in and to such units tendered that are
accepted for payment pursuant to the offer, including, without limitation, (i)
all of your interest in the capital of your partnership, and interest in all
profits, losses and distributions of any kind to which you shall at any time be
entitled in respect of the units; (ii) all other payments, if any, due or to
become due to you in respect of the units, under or arising out of your
partnership's agreement of limited partnership, whether as
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<PAGE> 63
contractual obligations, damages, insurance proceeds, condemnation awards or
otherwise; (iii) all of your claims, rights, powers, privileges, authority,
options, security interests, liens and remedies, if any, under or arising out of
your partnership's agreement of limited partnership or your ownership of the
units, including, without limitation, all voting rights, rights of first offer,
first refusal or similar rights, and rights to be substituted as a limited
partner of your partnership; and (iv) all of your present and future claims, if
any, against your partnership or your partners under or arising out of your
partnership's agreement of limited partnership for monies loaned or advanced,
for services rendered, for the management of your partnership or otherwise.
Election of Consideration
You may elect to receive Preferred OP Units, Common OP Units or cash
pursuant to our offer, by so indicating in the appropriate space on the Letter
of Transmittal. In the event that you tender units but do not indicate on the
Letter of Transmittal which type of consideration you want, the AIMCO Operating
Partnership will issue Preferred OP Units to you.
Determination of Validity; Rejection of Units; Waiver of Defects; No Obligation
to Give Notice of Defects
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance for payment of any tender of units pursuant to the offer
will be determined by the AIMCO Operating Partnership, in its sole discretion,
which determination shall be final and binding on all parties. The AIMCO
Operating Partnership reserves the absolute right to reject any or all tenders
of any particular unit determined by it not to be in proper form or if the
acceptance of or payment for that unit may, in the opinion of the AIMCO
Operating Partnership's counsel, be unlawful. The AIMCO Operating Partnership
also reserves the absolute right to waive or amend any of the conditions of the
offer that it is legally permitted to waive as to the tender of any particular
unit and to waive any defect or irregularity in any tender with respect to any
particular unit. The AIMCO Operating Partnership's interpretation of the terms
and conditions of the offer (including the Letters of Transmittal) will be final
and binding on all parties. No tender of units will be deemed to have been
validly made unless and until all defects and irregularities have been cured or
waived. Neither the AIMCO Operating Partnership, the Information Agent nor any
other person will be under any duty to give notification of any defects or
irregularities in the tender of any units or will incur any liability for
failure to give any such notification.
Backup Federal Income Tax Withholding
To prevent the possible application of back-up Federal income tax
withholding of 31% with respect to payment of the offer consideration, you may
have to provide the AIMCO Operating Partnership with your correct taxpayer
identification number. See the instructions to the Letter of Transmittal.
FIRPTA Withholding
To prevent the withholding of Federal income tax in an amount equal to 10%
of the amount realized pursuant to the offer, you must certify under penalty of
perjury that you are not a foreign person. See the instructions to the Letter of
Transmittal and "Federal Income Tax Consequences."
Transfer Taxes
The amount of any transfer taxes (whether imposed on the registered holder
of units or any person) payable on account of the transfer to such person will
be deducted from the purchase price unless satisfactory evidence of the such
taxes or exemption therefrom is submitted.
Binding Agreement
If you tender units pursuant to any of the procedures described above, the
acceptance for payment of such units will constitute a binding agreement between
you and the AIMCO Operating Partnership on the terms set forth in this
Prospectus Supplement.
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<PAGE> 64
WITHDRAWAL RIGHTS
Tenders of units pursuant to the offer may be withdrawn at any time prior
to our acceptance of such units for payment.
For withdrawal to be effective, a written notice of withdrawal must be
timely received by the Information Agent at its address set forth on the back
cover of this Prospectus Supplement. Any such notice of withdrawal must specify
the name of the person who tendered, the number of units to be withdrawn and the
name of the registered holder of such units, if different from the person who
tendered. In addition, the notice of withdrawal must be signed by the person(s)
who signed the Letter of Transmittal in the same manner as the Letter of
Transmittal was signed.
If purchase of, or payment for, units is delayed for any reason or if the
AIMCO Operating Partnership is unable to purchase or pay for units for any
reason, then, without prejudice to the AIMCO Operating Partnership's rights
under the offer, tendered units may be retained by the Information Agent and may
not be withdrawn, except to the extent that participants are entitled to
withdrawal rights as set forth herein; subject, however, to the AIMCO Operating
Partnership's obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to
pay the offer consideration in respect of units tendered or return those units
promptly after termination or withdrawal of the offer.
Any units properly withdrawn will thereafter be deemed not to have been
validly tendered for purposes of the offer.
All questions as to the validity and form (including time of receipt) of
notices of withdrawal will be determined by the AIMCO Operating Partnership, in
its sole discretion, which determination shall be final and binding on all
parties. Neither the AIMCO Operating Partnership, the Information Agent nor any
other person will be under any duty to give notification of any defects or
irregularities in any notice of withdrawal or incur any liability for failure to
give any such notification.
EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT
The AIMCO Operating Partnership expressly reserves the right, in its sole
discretion, at any time and from time to time, (i) to extend the period of time
during which the offer is open and thereby delay acceptance for payment of, and
for, any units, (ii) to terminate the offer and not accept for payment any units
not theretofore accepted for payment or paid for if any of the conditions to the
offer are not satisfied or if any event occurs that might reasonably be expected
to result in a failure to satisfy such conditions, (iii) upon the occurrence of
any of the conditions specified in "-- Conditions of the Offer," to delay the
acceptance for payment of, or for, any units not already accepted for payment or
paid for and (iv) to amend the offer in any respect (including, without
limitation, increasing or decreasing the number of Preferred OP Units or Common
OP Units, or the amount of cash offered, eliminating any of the alternative
types of consideration being offered, or increasing or decreasing the percentage
of outstanding units being sought). Notice of any such extension, termination or
amendment will promptly be disseminated in a manner reasonably designed to
inform unitholders of such change. In the case of an extension of the offer, the
extension will be followed by a press release or public announcement which will
be issued no later than 7:00 a.m., Denver, Colorado time, on the next business
day after the scheduled expiration date of the offer, in accordance with Rule
14e-1(d) under the Exchange Act.
The offer may be extended or delayed indefinitely and no payment will be
made in respect of tendered units until the expiration of the offer and the
acceptance of units for payment. If the AIMCO Operating Partnership extends the
offer, or if the AIMCO Operating Partnership (whether before or after its
acceptance for payment of units) is delayed in its payment for units or is
unable to pay for units pursuant to the offer for any reason, then, without
prejudice to the AIMCO Operating Partnership's rights under the offer, the
Information Agent may retain tendered units and those units may not be withdrawn
except to the extent participants are entitled to withdrawal rights as described
in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating
Partnership's obligation, pursuant to Rule 14e-1(c), under the Exchange Act, to
pay the
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<PAGE> 65
offer consideration in respect of units tendered or return those units promptly
after termination or withdrawal of the offer.
If the AIMCO Operating Partnership makes a material change in the terms of
the offer, or if it waives a material condition to the offer, the AIMCO
Operating Partnership will extend the offer and disseminate additional tender
offer materials to the extent required by Rule 14e-1 under the Exchange Act. The
minimum period during which the offer must remain open following any material
change in the terms of the offer, other than a change in price or a change in
percentage of securities sought or a change in any dealer's soliciting fee, will
depend upon the facts and circumstances, including the materiality of the
change. With respect to a change in price or, subject to certain limitations, a
change in the percentage of securities sought or a change in any dealer's
soliciting fee, a minimum of ten business days from the date of such change is
generally required to allow for adequate dissemination to participants.
Accordingly, if prior to the expiration of the offer, the AIMCO Operating
Partnership increases (other than increases of not more than two percent of the
outstanding units) or decreases the number of units being sought, or increases
or decreases the consideration offered pursuant to the offer, and if the offer
is scheduled to expire at any time earlier than the tenth business day from the
date that notice of such increase or decrease is first published, sent or given
to unitholders, the offer will be extended at least until the expiration of such
ten business days. As used herein, "business day" means any day other than a
Saturday, Sunday or a Federal holiday, and consists of the time period from
12:01 a.m. through 12:00 midnight, Eastern time.
PRORATION
If the number of units properly tendered and not withdrawn prior to the
expiration of the offer does not exceed 25% of the outstanding units, the AIMCO
Operating Partnership, upon the terms and subject to the conditions of the
offer, will purchase all such units so tendered and not withdrawn.
If the number of units properly tendered and not withdrawn prior to the
expiration of the offer exceeds 25% of the outstanding units, the AIMCO
Operating Partnership, upon the terms and subject to the conditions of the
offer, will accept for purchase all units properly tendered and not withdrawn
prior to the expiration of the offer on a pro rata basis.
Following the expiration of the offer, the AIMCO Operating Partnership may
renew the offer one or more times on the same terms as described in this
Prospectus Supplement. If the number of units properly tendered and not
withdrawn prior to the expiration of any such renewal (together with units
previously purchased in the offer) is 25% or less, the AIMCO Operating
Partnership will purchase such units so tendered and not withdrawn. If the
number of units in your partnership properly tendered and not withdrawn prior to
the expiration of any such renewal (together with any units previously purchased
in this offer) is greater than 25%, the AIMCO Operating Partnership will
purchase units in the order of priority described in the preceding paragraph.
In the event that proration of tendered units is required, the AIMCO
Operating Partnership will determine the final proration factor as promptly as
practicable after the expiration of the offer or any renewal of the offer.
FRACTIONAL OP UNITS
We will issue fractional Common OP Units or Preferred OP Units, if
necessary.
FUTURE PLANS OF THE AIMCO OPERATING PARTNERSHIP
As described above under "Background and Reasons for the Offer," the AIMCO
Operating Partnership owns the general partner of your partnership and thereby
controls the management of your partnership. In addition, AIMCO owns the company
that manages your partnership's property. The AIMCO Operating Partnership
currently intends that, upon consummation of the offer, your partnership will
continue its business and operations substantially as they are currently being
conducted. The offer is not expected to have any effect on your partnership's
financial condition or results of operations.
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After the completion or termination of the offer, the AIMCO Operating
Partnership and its affiliates may acquire additional units or sell units.
However, the AIMCO Operating Partnership and its affiliates will not acquire any
additional units for a period of at least one year after expiration of the
offer. Any acquisition may be made through private purchases, market purchases
or transactions effected on a so-called partnership trading board, through one
or more future tender or exchange offers, by merger, consolidation or by any
other means deemed advisable. Any acquisition may be at a price higher or lower
than the price to be paid for the units purchased pursuant to this offer, and
may be for cash, limited partnership interests in the AIMCO Operating
Partnership or other consideration. The AIMCO Operating Partnership also may
consider selling some or all of the units it acquires pursuant to the offer to
persons not yet determined, which may include affiliates of the AIMCO Operating
Partnership. The AIMCO Operating Partnership may also buy your partnership's
property, although it has no present intention to do so. There can be no
assurance, however, that the AIMCO Operating Partnership will initiate or
complete, or will cause your partnership to initiate or complete, any subsequent
transaction during any specific time period following the expiration of the
offer or at all.
We currently intend that, upon consummation of the offer, your partnership
will continue its business and operations substantially as they are currently
being conducted. We do not have any present plans or proposals which relate to
or would result in any material changes in your partnership's structure or
business such as a merger, reorganization or liquidation. We have no present
intention to cause your partnership to sell any of its properties or to prepay
current mortgages within any specified time period.
VOTING BY THE AIMCO OPERATING PARTNERSHIP
If the AIMCO Operating Partnership acquires a substantial number of units
pursuant to the offer, the AIMCO Operating Partnership may be in a position to
influence voting decisions with respect to your partnership. Under your
partnership's agreement of limited partnership, holders of outstanding units are
entitled to take action with respect to a variety of matters, including
dissolution and most types of amendments to your partnership's agreement of
limited partnership. See "Comparison of Your Units and AIMCO OP Units -- Voting
Rights."
DISSENTERS' RIGHTS
Neither your partnership's agreement of limited partnership nor applicable
law provides any right for you to have your units appraised or redeemed in
connection with or as a result of the offer. In addition, we are not extending
appraisal rights in connection with the offer. You have the opportunity to make
your own decision on whether to tender your units in the offer.
No provisions have been made with regard to the offer to allow you or other
limited partners to inspect the books and records of your partnership or to
obtain counsel or appraisal services at our expense or at the expense of your
partnership. However, as described under "Comparison of Your Partnership and the
AIMCO Operating Partnership -- Review of Investor Lists," you have the right
under your partnership's agreement of limited partnership to obtain a list of
the limited partners.
CONDITIONS OF THE OFFER
Notwithstanding any other provisions of the offer, the AIMCO Operating
Partnership shall not be required to accept for payment and pay for any units
tendered pursuant to the offer, may postpone the purchase of, and payment for,
units tendered, and may terminate or amend the offer if at any time from or
after the date of this Prospectus Supplement and at or before the expiration
date of the offer, including any extension thereof, any of the following shall
occur:
(a) any change (or any condition, event or development involving a
prospective change) shall have occurred or been threatened in the business,
properties, assets, liabilities, indebtedness, capitalization, condition
(financial or otherwise), operations, licenses or franchises, management
contract, or results of operations or prospects of your partnership or
local markets in which your partnership owns or operates its property,
including any fire, flood, natural disaster, casualty loss, or act of God
that, in the reasonable
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judgment of the AIMCO Operating Partnership, is or may be materially
adverse to your partnership or the value of your units to the AIMCO
Operating Partnership, or the AIMCO Operating Partnership shall have become
aware of any facts relating to your partnership, its indebtedness or its
operations which, in the reasonable judgment of the AIMCO Operating
Partnership, has or may have material significance with respect to the
value of your partnership or the value of your units to the AIMCO Operating
Partnership; or
(b) there shall have occurred (i) any general suspension of trading in,
or limitation on prices for, securities on any national securities exchange
or the over-the-counter market in the United States, (ii) a decline in the
closing share price of AIMCO's Class A Common Stock of more than 7.5% per
share, from the date hereof, (iii) any extraordinary or material adverse
change in the financial, real estate or money markets or major equity
security indices in the United States such that there shall have occurred
at least a 7.5% increase in LIBOR or at least a 7.5% decrease in the S&P
500 Index, the Morgan Stanley REIT Index, or the price of the 10-year
Treasury Bond or the price of the 30-year Treasury Bond, in each case from
the date hereof, (iv) any material adverse change in the commercial
mortgage financing markets, (v) a declaration of a banking moratorium or
any suspension of payments in respect of banks in the United States, (vi) a
commencement of a war, armed hostilities or other national or international
calamity directly or indirectly involving the United States, (vii) any
limitation (whether or not mandatory) by any governmental authority on, or
any other event which, in the reasonable judgment of the AIMCO Operating
Partnership, might affect the extension of credit by banks or other lending
institutions, or (viii) in the case of any of the foregoing existing at the
time of the commencement of the offer, in the reasonable judgment of the
AIMCO Operating Partnership, a material acceleration or worsening thereof
(any changes to the offer resulting from the conditions set forth in this
paragraph will most likely involve a change in the amount or terms of the
consideration offered or the termination of the offer); or
(c) there shall have been threatened, instituted or pending any action,
proceeding, application or counterclaim by any Federal, state, local or
foreign government, governmental authority or governmental agency, or by
any other person, before any governmental authority, court or regulatory or
administrative agency, authority or tribunal, which (i) challenges or seeks
to challenge the acquisition by the AIMCO Operating Partnership of the
units, restrains, prohibits or delays the making or consummation of the
offer, prohibits the performance of any of the contracts or other
arrangements entered into by the AIMCO Operating Partnership (or any
affiliates of the AIMCO Operating Partnership) seeks to obtain any material
amount of damages as a result of the transactions contemplated by the
offer, (ii) seeks to make the purchase of, or payment for, some or all of
the units pursuant to the offer illegal or results in a delay in the
ability of the AIMCO Operating Partnership to accept for payment or pay for
some or all of the units, (iii) seeks to prohibit or limit the ownership or
operation by AIMCO or any of its affiliates of the entity serving as your
general partner (which is our subsidiary) or to remove such entity as the
general partner of your partnership, or seeks to impose any material
limitation on the ability of the AIMCO Operating Partnership or any of its
affiliates to conduct your partnership's business or own such assets, (iv)
seeks to impose material limitations on the ability of the AIMCO Operating
Partnership or any of its affiliates to acquire or hold or to exercise full
rights of ownership of the units including, but not limited to, the right
to vote the units purchased by it on all matters properly presented to
unitholders or (v) might result, in the sole judgment of the AIMCO
Operating Partnership, in a diminution in the value of your partnership or
a limitation of the benefits expected to be derived by the AIMCO Operating
Partnership as a result of the transactions contemplated by the offer or
the value of units to the AIMCO Operating Partnership; or
(d) there shall be any action taken, or any statute, rule, regulation,
order or injunction shall be sought, proposed, enacted, promulgated,
entered, enforced or deemed applicable to the offer, the AIMCO Operating
Partnership, its general partner or any of its affiliates or any other
action shall have been taken, proposed or threatened, by any government,
governmental authority or court, that, in the reasonable judgment of the
AIMCO Operating Partnership, might, directly or indirectly, result in any
of the consequences referred to in clauses (i) through (v) of paragraph (c)
above; or
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(e) your partnership shall have (i) changed, or authorized a change of,
its units or your partnership's capitalization, (ii) issued, distributed,
sold or pledged, or authorized, proposed or announced the issuance,
distribution, sale or pledge of (A) any equity interests (including,
without limitation, units), or securities convertible into any such equity
interests or any rights, warrants or options to acquire any such equity
interests or convertible securities, or (B) any other securities in respect
of, in lieu of, or in substitution for units outstanding on the date
hereof, (iii) purchased or otherwise acquired, or proposed or offered to
purchase or otherwise acquire, any outstanding units or other securities,
(iv) declared or paid any dividend or distribution on any units or issued,
authorized, recommended or proposed the issuance of any other distribution
in respect of the units, whether payable in cash, securities or other
property, (v) authorized, recommended, proposed or announced an agreement,
or intention to enter into an agreement, with respect to any merger,
consolidation, liquidation or business combination, any acquisition or
disposition of a material amount of assets or securities, or any release or
relinquishment of any material contract rights, or any comparable event,
not in the ordinary course of business, (vi) taken any action to implement
such a transaction previously authorized, recommended, proposed or publicly
announced, (vii) issued, or announced its intention to issue, any debt
securities, or securities convertible into, or rights, warrants or options
to acquire, any debt securities, or incurred, or announced its intention to
incur, any debt other than in the ordinary course of business and
consistent with past practice, (viii) authorized, recommended or proposed,
or entered into, any transaction which, in the reasonable judgment of the
AIMCO Operating Partnership, has or could have an adverse affect on the
value of your partnership or the units, (ix) proposed, adopted or
authorized any amendment of its organizational documents, (x) agreed in
writing or otherwise to take any of the foregoing actions, or (xi) been
notified that any debt of your partnership or any of its subsidiaries
secured by any of its or their assets is in default or has been accelerated
(any changes to the offer resulting from the conditions set forth in this
paragraph will most likely involve a change in the amount or terms of the
consideration offered or the termination of the offer); or
(f) a tender or exchange offer for any units shall have been commenced
or publicly proposed to be made by another person or "group" (as defined in
Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall have
been publicly disclosed or the AIMCO Operating Partnership shall have
otherwise learned that (i) any person or group shall have acquired or
proposed or be attempting to acquire beneficial ownership of more than four
percent of the units, or shall have been granted any option, warrant or
right, conditional or otherwise, to acquire beneficial ownership of more
than four percent of the units, or (ii) any person or group shall have
entered into a definitive agreement or an agreement in principle or made a
proposal with respect to a merger, consolidation, purchase or lease of
assets, debt refinancing or other business combination with or involving
your partnership; or
(g) with respect to the cash portion of the offer consideration only,
the AIMCO Operating Partnership shall not have adequate cash or financing
commitments available to pay the cash portion of the offer consideration;
or
(h) the offer to purchase may have an adverse effect on AIMCO's status
as a REIT.
The foregoing conditions are for the sole benefit of the AIMCO Operating
Partnership and may be asserted by the AIMCO Operating Partnership regardless of
the circumstances giving rise to such conditions or may be waived by the AIMCO
Operating Partnership in whole or in part at any time and from time to time in
its reasonable discretion. The failure by the AIMCO Operating Partnership at any
time to exercise any of the foregoing rights shall not be deemed a waiver of any
such right, the waiver of any such right with respect to any particular facts or
circumstances shall not be deemed a waiver with respect to any other facts or
circumstances and each right shall be deemed a continuing right which may be
asserted at any time and from time to time.
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EFFECTS OF THE OFFER
Future Control by AIMCO
Because the general partner of your partnership is a subsidiary of AIMCO,
AIMCO has control over the management of your partnership. If the AIMCO
Operating Partnership acquires units in the offer, AIMCO will increase its
ability to influence voting decisions with respect to your partnership. However,
we will not be able to control voting decisions unless we acquire more units in
another transaction, which cannot take place for at least one year after
expiration of this offer. Furthermore, in the event that the AIMCO Operating
Partnership acquires a substantial number of units pursuant to the offer,
removal of the general partner of your partnership (which general partner is
controlled by AIMCO) without AIMCO's consent may become more difficult or
impossible. AIMCO also controls the company that manages your partnership's
property. In the event that the AIMCO Operating Partnership acquires a
substantial number of units pursuant to the offer, removal of the property
manager may become more difficult or impossible.
Effect on Trading Market
If a substantial number of units are purchased pursuant to the offer, the
result will be a reduction in the number of limited partners in your
partnership. In the case of certain kinds of equity securities, a reduction in
the number of securityholders might be expected to result in a reduction in the
liquidity and volume of activity in the trading market for the security. In this
case, however, there is no established public trading market for the units and,
therefore, the AIMCO Operating Partnership does not believe a reduction in the
number of limited partners will materially further restrict your ability to find
purchasers for your units through secondary market transactions.
Distributions to the AIMCO Operating Partnership
As a result of the offer, the AIMCO Operating Partnership, in its capacity
as a limited partner of your partnership, will participate in any subsequent
distributions to limited partners to the extent of its interest in your
partnership, including the units purchased pursuant to this offer.
Partnership Business
This offer will not affect the operation of your partnership's property.
The AIMCO Operating Partnership will continue to control the general partner of
your partnership and the property manager will remain the same. Consummation of
the offer will not affect your partnership's agreement of limited partnership,
the financial condition or results of operations of your partnership, the
business and properties owned, the management compensation payable to your
general partner (which is our subsidiary) or its affiliates or any other matter
relating to your partnership, except it would result in the AIMCO Operating
Partnership substantially increasing its ownership of units of your partnership.
We will receive future distributions from your partnership for any units we
purchase.
CERTAIN LEGAL MATTERS
General. Except as set forth in this section, the AIMCO Operating
Partnership is not, based on information provided by your general partner (which
is our subsidiary), aware of any licenses or regulatory permits that would be
material to the business of your partnership, taken as a whole, and that might
be adversely affected by the AIMCO Operating Partnership's acquisition of units
as contemplated herein, or any filings, approvals or other actions by or with
any domestic or foreign governmental authority or administrative or regulatory
agency that would be required prior to the acquisition of units by the AIMCO
Operating Partnership pursuant to the offer as contemplated herein, other than
the filing with the SEC of a Tender Offer Statement on Schedule 14D-1 and any
amendments required thereto. While there is no present intent to delay the
purchase of units tendered pursuant to the offer pending receipt of any such
additional approval or the taking of any such action, there can be no assurance
that any such additional approval or action, if needed, would be obtained
without substantial conditions or that adverse consequences might not result to
your partnership's business, or that certain parts of your partnership's
business might not have to be disposed of or
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other substantial conditions complied with in order to obtain such approval or
action, any of which could cause the AIMCO Operating Partnership to elect to
terminate the offer without purchasing units hereunder. The AIMCO Operating
Partnership's obligation to purchase and pay for units is subject to certain
conditions, including conditions related to the legal matters discussed in this
section.
Antitrust. The AIMCO Operating Partnership does not believe that the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is applicable
to the acquisition of units contemplated by this offer.
Margin Requirements. The units are not "margin securities" under the
regulations of the Board of Governors of the Federal Reserve System and,
accordingly, those regulations generally are not applicable to this offer.
State Laws. The AIMCO Operating Partnership is not aware of any
jurisdiction in which the making of the offer is not in compliance with
applicable law. If the AIMCO Operating Partnership becomes aware of any
jurisdiction in which the making of the offer would not be in compliance with
applicable law, the AIMCO Operating Partnership will make a good faith effort to
comply with any such law. If, after such good faith effort, the AIMCO Operating
Partnership cannot comply with any such law, the offer will not be made to (nor
will tenders be accepted from or on behalf of) limited partners residing in such
jurisdiction. In those jurisdictions whose securities or blue sky laws require
the offer to be made by a licensed broker or dealer, the offer shall be made on
behalf of the AIMCO Operating Partnership, if at all, only by one or more
registered brokers or dealers licensed under the laws of that jurisdiction.
Certain Litigation
On March 24, 1998, certain persons claiming to own limited partner
interests in certain of the limited partnerships for which subsidiaries of IPT
act as general partner (excluding your partnership) filed a purported class and
derivative action in California Superior Court in the County of San Mateo
against AIMCO, Insignia, the general partners of the partnerships, certain
persons and entities who purportedly formerly controlled the general partners,
and additional entities affiliated with and individuals who are officers,
directors and/or principals of several of the defendants. The complaint contains
allegations that, among other things, (i) the defendants breached fiduciary
duties owed to the plaintiffs, or aided and abetted in those purported breaches,
by selling or agreeing to sell their "fiduciary positions" as stockholders,
officers and directors of the general partners for a profit and retaining said
profit rather than distributing it to the plaintiffs; (ii) the defendants
breached fiduciary duties, or aided and abetted in those purported breaches, by
mismanaging the partnerships and misappropriating assets of the partnerships by
(a) manipulating the operations of the partnerships to depress the trading price
of limited partnership units of the partnerships; (b) coercing and fraudulently
inducing unitholders to sell units to certain of the defendants at depressed
prices; and (c) using the voting control obtained by purchasing units at
depressed prices to entrench certain of the defendants' positions of control
over the partnerships; and (iii) the defendants breached their fiduciary duties
to the plaintiffs by (a) selling assets of the partnerships such as mailing
lists of unitholders and (b) causing the general partners to enter into
exclusive arrangements with their affiliates to sell goods and services to the
general partners, the unitholders and tenants of properties owned by the
partnerships. The complaint also alleges that the foregoing allegations
constitute violations of various California securities, corporate and
partnership statutes, as well as conversion and common law fraud. The complaint
seeks unspecified compensatory and punitive damages, an injunction blocking the
sale of control of the general partners and a court order directing the
defendants to discharge their fiduciary duties to the plaintiffs. On June 25,
1998, the defendants filed motions seeking dismissal of the action. In lieu of
responding to the motion, plaintiffs have filed an amended complaint. On October
14, 1998, the AIMCO and Insignia defendants filed demurrers to the amended
complaint. The demurrers (which are requests to dismiss the action as a matter
of law) were heard on February 8, 1999, but no decision has been reached by the
Court. While no assurances can be given, we believe that the ultimate outcome of
this litigation will not have a material adverse effect on us.
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FEES AND EXPENSES
The AIMCO Operating Partnership will not pay any fees or commissions to any
broker, dealer or other person for soliciting tenders of units pursuant to the
offer. The AIMCO Operating Partnership has retained River Oaks Partnership
Services, Inc. to act as Information Agent in connection with the offer. The
Information Agent may contact holders of units by mail, telephone, telex,
telegraph and personal interview and may request brokers, dealers and other
nominees to forward materials relating to the offer to beneficial owners of the
units. The AIMCO Operating Partnership will pay the Information Agent reasonable
and customary compensation for its services in connection with the offer, plus
reimbursement for out-of-pocket expenses, and will indemnify the Information
Agent against certain liabilities and expenses in connection therewith,
including liabilities under the Federal securities laws. The AIMCO Operating
Partnership will also pay all costs and expenses of printing and mailing this
Prospectus Supplement, the accompanying Prospectus, the Letter of Transmittal,
and the legal and accounting fees in connection with this offer. The AIMCO
Operating Partnership will also pay the fees of Stanger for providing the
fairness opinion for the offer. The AIMCO Operating Partnership estimates that
its total costs and expenses in making the offer (excluding the purchase price
of the units) will be approximately $50,000.
ACCOUNTING TREATMENT
Upon consummation of the offer, the AIMCO Operating Partnership will
account for its investment in the units acquired in the offer under the purchase
method of accounting. There will be no effect on the accounting treatment of
your partnership as a result of the offer.
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FEDERAL INCOME TAX CONSEQUENCES
The following summary is a general discussion of the material Federal
income tax consequences of the offer to (i) persons who tender some or all of
their units in exchange for OP Units pursuant to the offer, (ii) persons who
tender some or all of their units for cash pursuant to the offer and (iii)
persons who do not tender any of their units pursuant to the offer. This
discussion is based upon the Internal Revenue Code of 1986, as amended ("the
Code"), Treasury Regulations, rulings issued by the IRS, and judicial decisions,
all in effect as of the date of this offer and all of which are subject to
differing interpretations or change, possibly retroactively. This summary is
based on the assumptions that the AIMCO Operating Partnership and your
partnership will be operated in accordance with their respective organizational
documents and partnership agreements. This summary is for general information
only and does not purport to discuss all aspects of Federal income taxation
which may be important to you in light of your specific investment or tax
circumstances, or if you are subject to special tax rules (for example, if you
are a financial institution, broker-dealer, insurance company, or, except to the
extent discussed below, tax-exempt organization or foreign investor, as
determined for United States Federal income tax purposes). This summary assumes
that your units and any OP Units that you receive in the offer are capital
assets (generally, property held for investment). No advance ruling has been or
will be sought from the IRS regarding any matter discussed in this Prospectus
Supplement.
The Federal income tax treatment of an offeree participating in the offer
depends in some instances on determinations of fact and interpretations of
complex provisions of Federal income tax law. No clear precedent or authority
may be available on some questions. Accordingly, you should consult your tax
advisor regarding the Federal, state, local and foreign tax consequences to you
of selling or exchanging units pursuant to the offer or of a decision not to
sell or exchange in light of your specific tax situation.
TAX OPINIONS
Skadden, Arps, Slate, Meagher & Flom LLP ("Special Tax Counsel") has
delivered an opinion letter with regard to the material United States Federal
income tax consequences of the offer. The opinion letter of Special Tax Counsel
is filed as an exhibit to this Registration Statement. You may obtain a copy of
such opinion letter by sending a written request to the AIMCO Operating
Partnership.
The specific United States Federal income tax opinions that Special Tax
Counsel has provided are:
1. Commencing with AIMCO's initial taxable year ended December 31, 1994,
AIMCO was organized in conformity with the requirements for qualification
as a REIT under the Code, and its actual method of operation has enabled,
and its proposed method of operation will enable, AIMCO to meet the
requirements for qualification and taxation as a REIT. As noted in the
accompanying Prospectus, AIMCO's qualification and taxation as a REIT
depend upon its ability to meet, through actual annual operating results,
certain requirements, including requirements relating to distribution
levels and diversity of stock ownership, and the various qualification
tests imposed under the Code, the results of which have been represented by
the AIMCO's officers and will not be reviewed by Special Tax Counsel. No
assurance can be given that the actual results of AIMCO's future operations
for any one taxable year will satisfy the requirements for taxation as a
REIT under the Code.
2. The AIMCO Operating Partnership will be treated as a partnership and
not as an association taxable as a corporation for Federal income tax
purposes.
3. You will not recognize gain or loss for Federal income tax purposes
when you exchange your units solely for OP Units. If, immediately prior to
such exchange, the amount of your partnership's liabilities allocable to
the units you transfer to the AIMCO Operating Partnership exceeds the
amount of the AIMCO Operating Partnership's liabilities allocable to you
immediately after the exchange, you will receive a deemed distribution in
an amount equal to such liability relief and will recognize gain for
Federal income tax purposes to the extent that the amount of such deemed
distribution exceeds your aggregate adjusted tax basis in your OP Units.
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4. If you exchange your units for cash and OP Units, you will be treated
for Federal income tax purposes as selling some of your units for cash in a
taxable sale and contributing some of your units for OP Units in a tax-free
exchange. With respect to the units that you will be treated as selling for
cash, you will be taxed as described in paragraph number five below. With
respect to the units that you will be treated as exchanging for OP Units,
you will be taxed as described in paragraph number three above.
5. If you sell your units solely for cash, you will recognize gain or
loss for Federal income tax purposes in an amount equal to the difference
between (i) your amount realized on the sale and (ii) your adjusted tax
basis in the units you sold.
6. If you retain all or a portion of your units and your partnership
terminates for Federal income tax purposes, you will not recognize any gain
or loss as a result of such termination and your capital account in your
partnership will not be affected.
7. Because of the factual nature of the inquiry, no opinion is expressed
by Special Tax Counsel as to whether your exercise of a redemption right
with respect to an OP Unit would cause your contribution of units to the
AIMCO Operating Partnership to be a taxable transaction under the disguised
sale rules of the Code.
8. The discussion in the accompanying Prospectus under the captions
"FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS" and "FEDERAL
INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNIT HOLDERS" and
in this Prospectus Supplement under the caption "FEDERAL INCOME TAX
CONSEQUENCES" is a fair and accurate summary of the material United States
Federal income tax consequences of the offers and of the acquisition,
ownership and disposition of the OP Units and the AIMCO stock by a holder
who acquires the OP Units or AIMCO stock in connection with the offers,
subject to the qualifications set forth therein.
It must be emphasized that these opinions are based and conditioned upon
representations and covenants made by AIMCO and the AIMCO Operating Partnership
as to factual matters (including representations and covenants concerning
AIMCO's properties and the past, present and future conduct of its business and
your partnership's liabilities). These opinions are expressed as of the date of
the opinion letter and Special Tax Counsel has no obligation to advise AIMCO or
the AIMCO Operating Partnership of any subsequent change in the matters stated,
represented, or assumed or any subsequent change in the law. An opinion of
counsel is not binding on the IRS, and no assurance can be given that the IRS
will not challenge the above opinions of Special Tax Counsel.
TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR OP UNITS
Except as described below, you will not recognize gain or loss for Federal
income tax purposes when you exchange your units solely for OP Units. You may
recognize gain upon such exchange if, immediately prior to such exchange, the
amount of liabilities of your partnership allocable to the units you transferred
exceeds the amount of the AIMCO Operating Partnership liabilities allocable to
you immediately after such exchange. If this was true in your case, the excess
would be treated as a deemed distribution of cash to you from the AIMCO
Operating Partnership. This deemed cash distribution would be treated as a
nontaxable return of capital to the extent of your adjusted tax basis in your OP
Units and thereafter as a taxable gain.
The AIMCO Operating Partnership anticipates that, under most circumstances,
you will be allocated an amount of the AIMCO Operating Partnership liabilities,
as determined immediately after you exchange your units pursuant to the offer,
at least equal to the amount of liabilities of your partnership that were
allocable to your units prior to such exchange. Accordingly, the AIMCO Operating
Partnership anticipates that most persons who participate in the tender offer
would not recognize gain or loss as a result of an exchange of units solely for
OP Units pursuant to the offer.
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DISGUISED SALES
Under the Code, a transfer of property by a partner to a partnership
followed by a related transfer by the partnership of money or other property to
the partner is treated as a "disguised" sale if (1) the second transfer would
not have occurred but for the first transfer and (2) the second transfer "is not
dependent on the entrepreneurial risks of the partnership operations." In a
disguised sale, the partner is treated as if he or she sold the contributed
property to the partnership as of the date the property was contributed to the
partnership. In addition, unless a few technical exceptions apply, transfers of
money or other property between a partnership and a partner that are made within
two years of each other, including redemptions of OP Units made within two years
of a contribution of your units, must be reported to the IRS and are presumed to
be a "disguised" sale unless the facts and circumstances clearly establish that
the transfers do not constitute a sale.
While there is no authority applying the disguised sale rules to the
exercise of a redemption right by a partner with respect to a partnership
interest received in exchange for property, the exercise of a redemption right
with respect to OP Units within two years of the date of the contribution of
your units to the AIMCO Operating Partnership may be treated as a disguised
sale. If this treatment were to apply, you would be treated for Federal income
tax purposes as if, on the date of the contribution of your units, the AIMCO
Operating Partnership transferred to you an obligation to give you the
redemption proceeds. In that case, you would be required to recognize gain on
the disguised sale in such earlier year. Because of the factual nature of such
an inquiry, Special Tax Counsel is unable to opine whether your exercise of a
redemption right with respect to an OP Unit would cause your contribution of
units to the AIMCO Operating Partnership to be a taxable transaction under the
disguised sale rules of the Code.
If you are considering exchanging units for OP Units pursuant to the offer,
please read the description under the heading "Federal Income Taxation of the
AIMCO Operating Partnership and OP Unitholders -- Tax Consequences Upon
Contribution of Property to the AIMCO Operating Partnership" in the accompanying
Prospectus.
TAX CONSEQUENCES OF EXCHANGING UNITS FOR CASH AND OP UNITS
If you exchange your units for cash and OP Units, you will be treated as
selling some of your units for cash in a taxable sale and contributing some of
your units for OP Units in a tax-free exchange. Your adjusted tax basis in your
transferred units will be allocated between the units you will be deemed to have
sold and the units you will be deemed to have contributed to the AIMCO Operating
Partnership.
With respect to the units that you will be treated as selling, you will
recognize gain or loss in an amount equal to the difference between (i) your
"amount realized" on the sale and (ii) your adjusted tax basis in units you
sold. Your "amount realized" on such sale will be equal to the sum of the amount
of cash you received pursuant to the offer (that is, the offer consideration)
plus the amount of your partnership's liabilities attributed to the units you
sold. For purposes of these partial sale rules, the amount of your partnership's
liabilities attributed to the units you sold will be equal to the lesser of (i)
the excess of the amount of your partnership's liabilities allocable to you in
respect of the transferred units immediately prior to the exchange over the
amount of such liabilities allocable to you as determined immediately after the
exchange or (ii) the product of (A) the amount of your partnership's liabilities
allocable to you in respect of the units you are deemed to have sold immediately
prior to the exchange and (B) your "net equity percentage" with respect to those
units. Your "net equity percentage" will be equal to the percentage determined
by dividing (x) the cash you received in the exchange by (y) the excess of the
gross fair market value of the units in the exchange over the amount of your
partnership's liabilities allocable to you in respect of those units immediately
prior to the exchange. Thus, your tax liability could exceed the amount of cash
you receive in the sale.
With respect to the units that you will be treated as exchanging, rather
than selling, you will be taxed as described above under the heading "Tax
Consequences of Exchanging Units Solely for OP Units."
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TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR CASH
If you sell your units solely for cash, you will recognize gain or loss on
a sale of your units equal to the difference between (i) your "amount realized"
on the sale and (ii) your adjusted tax basis in the units you sold. The "amount
realized" with respect to a unit will be equal to the sum of the amount of cash
you received for your units (that is, the offer consideration) plus the amount
of the liabilities of your partnership allocable to such units (as determined
under Section 752 of the Code). Thus, your tax liability could exceed the amount
of cash you receive in the sale.
ADJUSTED TAX BASIS
If you acquired your units for cash:
- your initial tax basis in your units will be equal to such cash
investment in your partnership increased by your share of your
partnership's liabilities at the time such units were acquired;
- your initial tax basis generally has been increased by:
- your share of your partnership's income and gains and
- any increases in your share of your partnership's liabilities; and
- your initial tax basis generally has been decreased (but not below zero)
by:
- your share of cash distributions from your partnership,
- any decreases in your share of your partnership's liabilities,
- your share of your partnership's losses, and
- your share of nondeductible expenditures of your partnership that are
not chargeable to capital.
For purposes of determining your adjusted tax basis in your units
immediately prior to a disposition of such units, your adjusted tax basis will
include your share of your partnership's income, gain or loss for the taxable
year of disposition. If your adjusted tax basis is less than your share of your
partnership's liabilities (e.g., as a result of the effect of net loss
allocations and/or distributions exceeding the cost of your unit), the gain you
would recognize pursuant to the offer will exceed the cash proceeds you would
realize upon the sale of your units. The adjusted tax basis of the OP Units you
receive in exchange for your units pursuant to the offer will be equal to (i)
the sum of your adjusted tax basis in the units you transferred plus any gain
recognized in the exchange and will be reduced by (ii) any cash you received or
you were deemed to receive in the exchange.
CHARACTER OF GAIN OR LOSS RECOGNIZED PURSUANT TO THE OFFER
Except as described below, the gain or loss that you recognize on a sale or
exchange of a unit pursuant to the offer will be treated as a capital gain or
loss and will be treated as long-term capital gain or loss if your holding
period for the unit exceeds one year. Long-term capital gains recognized by
individuals and certain other noncorporate taxpayers generally will be subject
to a maximum Federal income tax rate of 20%. If the amount realized with respect
to a unit that is attributable to your share of "unrealized receivables" of your
partnership exceeds the tax basis attributable to those assets, such excess will
be treated as ordinary income. Among other things, "unrealized receivables"
include depreciation recapture for certain types of property. In addition, the
maximum Federal income tax rate applicable to persons who are noncorporate
taxpayers for net capital gains attributable to the sale of depreciable real
property (which may be determined to include an interest in a partnership such
as your partnership) held for more than one year is currently 25% (rather than
20%) to the extent of previously claimed depreciation deductions that would not
be treated as "unrealized receivables."
If you tender units in the offer, you will be allocated a share of your
partnership's taxable income or loss for the year of tender with respect to any
units sold or exchanged. You will not receive any future distributions
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on units that you tender on or after the date on which such units are accepted
for purchase, and accordingly, you may not receive any distributions with
respect to the income or loss. Such allocation and any cash distributed by your
partnership to you for that year will affect your adjusted tax basis in your
unit and, therefore, the amount of your taxable gain or loss upon a sale of a
unit pursuant to the offer.
PASSIVE ACTIVITY LOSSES
The passive activity loss rules of the Code limit the use of losses derived
from passive activities, which generally include investments in limited
partnership interests such as the units. An individual, as well as certain other
types of investors, generally cannot use losses from passive activities to
offset nonpassive activity income received during the taxable year. Passive
activity losses that are disallowed for a particular tax year are "suspended"
and may be carried forward to offset passive activity income earned by the
investor in future taxable years. In addition, such suspended losses may be
claimed as a deduction, subject to other applicable limitations, upon a taxable
disposition of the investor's interest in the passive activity.
Accordingly, if your investment in your partnership is treated as a passive
activity, you may be able to shelter gain from the sale of your units pursuant
to the offer with passive losses in the manner described below. If you receive
cash for all or a portion of your units pursuant to the offer and recognize a
gain on such sale, you will be entitled to use your current and "suspended"
passive activity losses (if any) from your partnership and other passive sources
to offset that gain. If you receive cash for all or a portion of your units
pursuant to the offer and recognize a loss on such sale, you will be entitled to
deduct that loss currently (subject to other applicable limitations) against the
sum of your passive activity income from your partnership for that year (if any)
plus any passive activity income from other sources for that year. If you
receive cash for all of your units pursuant to the offer, the balance of any
"suspended" losses from your partnership that were not otherwise utilized
against passive activity income as described in the two preceding sentences will
no longer be suspended and will therefore be deductible (subject to any other
applicable limitations) by you against any other income for that year,
regardless of the character of that income. Accordingly, you should consult your
tax advisor concerning whether, and the extent to which, you have available
suspended passive activity losses from your partnership or other investments
that may be used to offset gain from the sale of your units pursuant to the
offer.
TAX REPORTING
If you tender any units, you must report the transaction by filing a
statement with your Federal income tax return for the year of the tender which
provides certain required information to the IRS. To prevent the possible
application of back-up Federal income tax withholding of 31% with respect to
payment of the offer consideration, you may have to provide the AIMCO Operating
Partnership with your correct taxpayer identification number. See the
instructions to the Letter of Transmittal.
FOREIGN OFFEREES
Gain recognized by a foreign person on a transfer of a unit for cash, OP
Units, or a combination thereof, pursuant to the offer will be subject to
Federal income tax under the Foreign Investment in Real Property Tax Act of 1980
( "FIRPTA"). If you are a foreign person, the AIMCO Operating Partnership will
be required, under the FIRPTA provisions of the Code, to deduct and withhold 10%
of the amount realized by you on the disposition. The amount withheld would be
creditable against your Federal income tax liability and, if the amount withheld
exceeds your actual tax liability you could obtain a refund from the IRS by
filing a U.S. income tax return. See the Instructions to the Letter of
Transmittal.
TAX CONSEQUENCES OF A TERMINATION OF YOUR PARTNERSHIP
Section 708 of the Code provides that if there is a sale or exchange of 50%
or more of the total interest in capital and profits of a partnership within any
12-month period, such partnership terminates for Federal income tax purposes (a
"Termination"). The AIMCO Operating Partnership's acquisition of units pursuant
to the offer may result in a Termination of your partnership. If an acquisition
of units results in a
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Termination, the following Federal income tax events will be deemed to occur:
the terminated Partnership (the "Old Partnership") will be deemed to have
contributed all of its assets (subject to its liabilities) (the "Hypothetical
Contribution") to a new partnership (the "New Partnership") in exchange for
interests in the New Partnership and, immediately thereafter, the Old
Partnership will be deemed to have distributed interests in the New Partnership
(the "Hypothetical Distribution") to the AIMCO Operating Partnership and to the
offerees who do not tender all of their units (a "Remaining Offeree") in
proportion to their respective interests in the Old Partnership in liquidation
of the Old Partnership.
A Remaining Offeree will not recognize any gain or loss upon the
Hypothetical Distribution or upon the Hypothetical Contribution and the capital
accounts of the Remaining Offerees in the Old Partnership will carry over intact
to the New Partnership. A Termination will change (and possibly shorten) a
Remaining Offeree's holding period with respect to its units in your partnership
for Federal income tax purposes. Gains recognized by a Remaining Offeree on the
disposition of New Partnership interests with a holding period of 12 months or
less may be classified as short-term capital gains and subject to taxation at
ordinary income tax rates.
The New Partnership's adjusted tax basis in its assets will be the same as
the Old Partnership's basis in such assets immediately before the Termination. A
Termination will also cause the New Partnership to recalculate the depreciable
lives of its assets. This will cause the assets to be depreciated over a longer
period of time than if there had been no Termination. This would generally
decrease the annual average depreciation deductions allocable to the Remaining
Offerees for a number of years following consummation of the offer (thereby
increasing the taxable income allocable to their retained units in each such
year), but would have no effect on the total depreciation deductions available
over the useful lives of the assets of your partnership.
Elections as to tax matters previously made by the Old Partnership prior to
Termination will not be applicable to the New Partnership unless the New
Partnership chooses to make the same elections.
Additionally, upon a Termination, the Old Partnership's taxable year will
close for all offerees.
YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES
APPLICABLE TO YOU AS A RESULT OF A SALE OR EXCHANGE OF UNITS PURSUANT TO THE
OFFER.
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COMPARISON OF YOUR PARTNERSHIP AND THE
AIMCO OPERATING PARTNERSHIP
The information below highlights a number of the significant differences
between your partnership and the AIMCO Operating Partnership relating to, among
other things, form of organization, permitted investments, policies and
restrictions, management structure, compensation and fees, and investor rights.
The section immediately following this section compares certain of the
respective legal rights associated with the ownership of units with Common OP
Units and Preferred OP Units. These comparisons are intended to assist you in
understanding how your investment will be changed if, as a result of the offer,
your units are exchanged for Common OP Units or Preferred OP Units. FOR A
DISCUSSION OF CERTAIN OF THE SIGNIFICANT DIFFERENCES BETWEEN THE AIMCO OPERATING
PARTNERSHIP AND AIMCO, SEE "COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND
AIMCO" IN THE ACCOMPANYING PROSPECTUS. For a comparison of certain legal rights
associated with an investment in the Common OP Units and the Class A Common
Stock, and a similar comparison in respect of the Preferred OP Units and the
Class I Preferred Stock, see "Comparison of Common OP Units and Class A Common
Stock" in the accompanying Prospectus and "Comparison of Preferred OP Units and
Class I Preferred Stock" herein, respectively.
YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
Form of Organization and Assets Owned
<TABLE>
<S> <C>
Your partnership is a limited partnership The AIMCO Operating Partnership is organized
organized under Massachusetts law for the as a Delaware limited partnership. The AIMCO
purpose of owning and managing Ravensworth Operating Partnership owns interests (either
Towers Apartments. directly or through subsidiaries) in
numerous multifamily apartment properties.
The AIMCO Operating Partnership conducts
substantially all of the operations of
AIMCO, a corporation organized under
Maryland and as a REIT.
</TABLE>
Duration of Existence
<TABLE>
<S> <C>
Your partnership was presented to limited The term of the AIMCO Operating Partnership
partners as a finite life investment, with continues until December 31, 2093, unless
limited partners to receive regular cash the AIMCO Operating Partnership is dissolved
distributions out of your partnership's Net sooner pursuant to the terms of the AIMCO
Cash Flow (as defined in your partner- Operating Partnership's agreement of limited
ship's agreement of limited partnership). partnership (the "AIMCO Operating
The termination date of your partnership is Partnership Agreement") or as provided by
December 31, 2013. law. See "Description of OP Units --
General" and "Description of OP
Units -- Dissolution and Winding Up" in the
accompanying Prospectus.
</TABLE>
Purpose and Permitted Activities
<TABLE>
<S> <C>
Your partnership has been formed to acquire, The purpose of the AIMCO Operating
own and operate of your partnership's Partnership is to conduct any business that
property. Subject to restrictions contained may be lawfully conducted by a limited
in your partnership's agreement of limited partnership organized pursuant to the
partnership, your partnership may perform Delaware Revised Uniform Limited Part-
all act necessary, advisable or convenient nership Act (as amended from time to time,
to the business of your partnership or any successor to such statute) (the
including borrowing money and creating "Delaware Limited Partnership Act"),
liens. provided that such business is to be
conducted in a manner that permits AIMCO to
be qualified as a REIT, unless AIMCO ceases
to qualify as a REIT. The AIMCO Operating
Partner-
</TABLE>
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YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
<TABLE>
<S> <C>
ship is authorized to perform any and all
acts for the furtherance of the purposes and
business of the AIMCO Operating Partnership,
provided that the AIMCO Operating
Partnership may not take, or refrain from
taking, any action which, in the judgment of
its general partner could (i) adversely
affect the ability of AIMCO to continue to
qualify as a REIT, (ii) subject AIMCO to
certain income and excise taxes, or (iii)
violate any law or regulation of any
governmental body or agency (unless such ac-
tion, or inaction, is specifically consented
to by AIMCO). Subject to the foregoing, the
AIMCO Operating Partnership may invest in or
enter into partnerships, joint ventures, or
similar arrangements. The AIMCO Operating
partnership currently invests, and intends
to continue to invest, in a real estate
portfolio primarily consisting of
multifamily rental apartment properties.
</TABLE>
Additional Equity
<TABLE>
<S> <C>
The general partner of your partnership is The general partner is authorized to issue
authorized to issue additional limited additional partnership interests in the
partnership interests in your partnership AIMCO Operating Partnership for any
and may admit additional limited partners by partnership purpose from time to time to the
selling not more than 50 Class A units for limited partners and to other persons, and
cash and notes to selected persons who to admit such other persons as additional
fulfill the requirements set forth in your limited partners, on terms and conditions
partnership's agreement of limited and for such capital contributions as may be
partnership. The capital contribution need established by the general partner in its
not be equal for all limited partners and no sole discretion. The net capital
action or consent is required in connection contribution need not be equal for all OP
with the admission of any additional limited Unitholders. No action or consent by the OP
partners. Unitholders is required in connection with
the admission of any additional OP
Unitholder. See "Description of OP
Units -- Management by the AIMCO GP" in the
accompanying Prospectus. Subject to Delaware
law, any additional partnership interests
may be issued in one or more classes, or one
or more series of any of such classes, with
such designations, preferences and relative,
participating, optional or other special
rights, powers and duties as shall be
determined by the general partner, in its
sole and absolute discretion without the
approval of any OP Unitholder, and set forth
in a written document thereafter attached to
and made an exhibit to the AIMCO Operating
Partnership Agreement.
</TABLE>
Restrictions Upon Related Party Transactions
<TABLE>
<S> <C>
Under your partnership's agreement of The AIMCO Operating Partnership may lend or
limited partnership the general partner of contribute funds or other assets to its
your partnership may employ themselves or subsidiaries or other persons in which it
their affiliates if necessary or has an equity investment,
</TABLE>
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YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
<TABLE>
<S> <C>
appropriate to carry out the business and and such persons may borrow funds from the
affairs of your partnership and pay such AIMCO Operating Partnership, on terms and
fees, expenses, salaries, wages and other conditions established in the sole and
compensation to such party as the general absolute discretion of the general partner.
partner in its sole discretion determine. To the extent consistent with the business
Your partnership's agreement of limited purpose of the AIMCO Operating Partnership
partnership also specifies certain contracts and the permitted activities of the general
that your partnership will or has entered partner, the AIMCO Operating Partnership may
into with the general partner of your transfer assets to joint ventures, limited
partnership and certain of their affiliates. liability companies, partnerships,
Your partnership is allowed to borrow money corporations, business trusts or other
from the general partner and their business entities in which it is or thereby
affiliates. becomes a participant upon such terms and
subject to such conditions consistent with
the AIMCO Operating Partnership Agreement
and applicable law as the general partner,
in its sole and absolute discretion,
believes to be advisable. Except as
expressly permitted by the AIMCO Operating
Partnership Agreement, neither the general
partner nor any of its affiliates may sell,
transfer or convey any property to the AIMCO
Operating Partnership, directly or
indirectly, except pursuant to transactions
that are determined by the general partner
in good faith to be fair and reasonable.
</TABLE>
Borrowing Policies
<TABLE>
<S> <C>
The general partner of your partnership may The AIMCO Operating Partnership Agreement
borrow money in the name and on behalf of contains no restrictions on borrowings, and
your partnership and, as security therefor, the general partner has full power and
to mortgage, pledge or otherwise encumber authority to borrow money on behalf of the
the assets of your partnership. The general AIMCO Operating Partnership. The AIMCO
partner is authorized to execute and Operating Partnership has credit agreements
deliver, for and on behalf of your that restrict, among other things, its
partnership, such notes and other evidences ability to incur indebtedness.
of indebtedness, contracts, agreements,
assignments, deeds, leases, loan agree-
ments, mortgages and other security
instruments and agreements as they deem
proper, all on such terms and conditions as
they deem proper.
</TABLE>
Review of Investor Lists
<TABLE>
<S> <C>
Your partnership's agreement of limited Each OP Unitholder has the right, upon
partnership entitles a limited partner or written demand with a statement of the
its duly authorized representative to have purpose of such demand and at such OP
access at all reasonable times to the books Unitholder's own expense, to obtain a
of account at the principal office of your current list of the name and last known
partnership or at such other place as the business, residence or mailing address of
general partner will determine. The general the general partner and each other OP
partner is not required to deliver or mail Unitholder.
copies of your partnership's certificate of
limited partnership or copies of
certificates of amendment thereto or
cancellation thereof to the limited
partners, although such documents are
available for review and copying by the
limited partners at your partnership's
principal office.
</TABLE>
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YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
Management Control
<TABLE>
<S> <C>
The overall management and control of the All management powers over the business and
business and affairs of your partnership is affairs of the AIMCO Operating Partnership
vested solely in the general partner of your are vested in AIMCO-GP, Inc., which is the
partnership. The limited partners are not general partner. No OP Unitholder has any
permitted to take part in the control of the right to participate in or exercise control
business or affairs of your partnership, to or management power over the business and
have any voice in the management or affairs of the AIMCO Operating Partner-
operation of any partnership's property, to ship. The OP Unitholders have the right to
possess the authority or power to act as vote on certain matters described under
agent for or on behalf of your partnership "Comparison of Your Units and AIMCO OP
or any other partner, to do any act which Units -- Voting Rights" below. The general
would be binding on your partnership or any partner may not be removed by the OP
other partner nor to incur any expenditure Unitholders with or without cause.
on behalf of or with respect to your
partnership. In addition to the powers granted a general
partner of a limited partnership under
applicable law or that are granted to the
general partner under any other provision of
the AIMCO Operating Partnership Agreement,
the general partner, subject to the other
provisions of the AIMCO Operating
Partnership Agreement, has full power and
authority to do all things deemed necessary
or desirable by it to conduct the business
of the AIMCO Operating Partnership, to
exercise all powers of the AIMCO Operating
Partnership and to effectuate the purposes
of the AIMCO Operating Partnership. The
AIMCO Operating Partnership may incur debt
or enter into other similar credit,
guarantee, financing or refinancing
arrangements for any purpose upon such terms
as the general partner determines to be
appropriate, and may perform such other acts
and duties for and on behalf of the AIMCO
Operating Partnership as are provided in the
AIMCO Operating Partnership Agreement. The
general partner is authorized to execute,
deliver and perform certain agreements and
transactions on behalf of the AIMCO
Operating Partnership without any further
act, approval or vote of the OP Unitholders.
</TABLE>
Management Liability and Indemnification
<TABLE>
<S> <C>
Under your partnership's agreement of Notwithstanding anything to the contrary set
limited partnership, the general partners of forth in the AIMCO Operating Partnership
your partnership and their affiliates will Agreement, the general partner is not liable
not incur any liability, responsibility or to the AIMCO Operating Partnership for
accountability for damages or otherwise to losses sustained, liabilities incurred or
your partnership or any limited partner for benefits not derived as a result of errors
any acts or omissions performed or omitted in judgment or mistakes of fact or law of
by any of them in good faith on behalf of any act or omission if the general partner
your partnership and in a manner reasonably acted in good faith. The AIMCO Operating
believed by them to be within the scope of Partnership Agreement provides for
the authority granted to them by your indemnification of AIMCO, or any director or
partnership's agreement of limited officer of AIMCO (in its capacity as the
partnership and in previous
</TABLE>
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YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
<TABLE>
<S> <C>
the best interests of your partnership if general partner of the AIMCO Operating
they are not guilty of negligence or willful Partnership), the general partner, any
misconduct with respect to such acts of officer or director of general partner or
omissions. In addition, your partnership the AIMCO Operating Partnership and such
will indemnify the general partners for any other persons as the general partner may
act performed by them within the scope of designate from and against all losses,
the authority conferred upon them by your claims, damages, liabilities, joint or
partnership's agreement of limited several, expenses (including legal fees),
partnership; provided, however, that such fines, settlements and other amounts
indemnity will be payable only if the incurred in connection with any actions
general partners acted in good faith and in relating to the operations of the AIMCO
a manner they reasonably believed to be in, Operating Partnership, as set forth in the
or not opposed to, the best interests of AIMCO Operating Partnership Agreement. The
your partnership and the partners and has no Delaware Limited Partnership Act provides
reasonable grounds to believe that their that subject to the standards and
conduct was negligent or unlawful. If a restrictions, if any, set forth in its
general partner is liable for negligence of partnership agreement, a limited partnership
misconduct in the performance of its duty to may, and shall have the power to, indemnify
your partnership, it will not be indemnified and hold harmless any partner or other
unless, and only to the extent that, the person from and against any and all claims
court in which such action or suit was and demands whatsoever. It is the position
brought determines that in view of all the of the Securities and Exchange Commission
circumstances of the case, despite the and certain state securities administrations
adjudication of liability, the general that indemnification of directors and
partner is fairly and reasonably entitled to officers for liabilities arising under the
indemnity for those expenses which the court Securities Act is against public policy and
deems proper. Any indemnity will be paid is unenforceable pursuant to Section 14 of
from, and only to the extent of, partnership the Securities Act of 1933 and their
assets. respective state securities laws.
</TABLE>
Anti-Takeover Provisions
<TABLE>
<S> <C>
Under your partnership's agreement of Except in limited circumstances, the general
limited partnership, the limited partners partner has exclusive management power over
may remove a general partner upon the vote the business and affairs of the AIMCO
of the limited partners holding more than Operating Partnership. The general partner
50% of the then outstanding Class A and may not be removed as general partner of the
Class B units. A general partner may not AIMCO Operating Partnership by the OP
withdraw voluntarily from your partnership Unitholders with or without cause. Under the
unless the remaining general partner AIMCO Operating Partnership Agreement, the
consents, the granting or denying of which general partner may, in its sole discretion,
will be in the remaining general partner's prevent a transferee of an OP Unit from
absolute discretion. A limited partner may becoming a substituted limited partner
not transfer his interests without the pursuant to the AIMCO Operating Partnership
consent of the general partners. Agreement. The general partner may exercise
this right of approval to deter, delay or
hamper attempts by persons to acquire a
controlling interest in the AIMCO Operating
Partnership. Additionally, the AIMCO
Operating Partnership Agreement contains
restrictions on the ability of OP
Unitholders to transfer their OP Units. See
"Description of OP Units -- Transfers and
Withdrawals" in the accompanying Prospectus.
</TABLE>
Amendment of Your Partnership Agreement
<TABLE>
<S> <C>
Your partnership's agreement of limited With the exception of certain circumstances
partnership may be amended upon without or set forth in the AIMCO Operating Partnership
without the con- Agreement,
</TABLE>
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YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
<TABLE>
<S> <C>
sent of the general partners if such whereby the general partner may, without the
proposed amendment is approved by a majority consent of the OP Unitholders, amend the
in interest of Class A and Class D limited AIMCO Operating Partnership Agreement,
partners and does not in any manner allow amendments to the AIMCO Operating
the limited partners to take part in the Partnership Agreement require the consent of
control of your partnership's business or the holders of a majority of the outstanding
otherwise modify the limited liability of Common OP Units, excluding AIMCO and certain
the limited partners, does not extend the other limited exclusions (a "Majority in
term of your partnership's agreement of Interest"). Amendments to the AIMCO
limited partnership, does not increase the Operating Partnership Agreement may be
amount that any limited partner is required proposed by the general partner or by
to contribute to the capital of your holders of a Majority in Interest. Following
partnership or require such partner to make such proposal, the general partner will
a loan to your partnership without such submit any proposed amendment to the OP
partners written consent, does not alter the Unitholders. The general partner will seek
rights, powers, obligations or duties of the the written consent of the OP Unitholders on
general partner without such general the proposed amendment or will call a
partner's consent, does not affect the meeting to vote thereon. See "Description of
rights, powers or obligations of Class B or OP Units -- Amendment of the AIMCO Operating
Class C limited partners and does not alter Partnership Agreement" in the accompanying
the amendment provisions. The general part- Prospectus.
ners may, without the consent or approval of
the limited partners amend your
partnership's agreement of limited
partnership to (i) add to the duties or
obligations of the general partners or
surrender any right or power granted to the
general partners by your partnership's
agreement of limited partnership, (ii) cure
any ambiguity, correct or supplement any
provision which may be inconsistent with any
other provision or to add provisions with
respect to matters or questions arising
under your partnership's agreement of
limited partnership which will not be incon-
sistent with any other provisions of your
partnership's agreement of limited
partnership and (iii) delete or add any
provision required to be so deleted or added
by applicable securities laws; provided that
no such amendment may be made which is
adverse to the interests of the limited
partners, does not affect the method of
allocation of cash distribution or net
profits and loses, does not affect the
limited liability of the limited partners
and the status of your partnership as a
partnership for tax purposes.
</TABLE>
Compensation and Fees
<TABLE>
<S> <C>
In addition to the right to distributions in The general partner does not receive
respect of its partnership interest and compensation for its services as general
reimbursement for all fees and expenses as partner of the AIMCO Operating Partnership.
set forth in your partnership's agreement of However, the general partner is entitled to
limited partnership, the general partner payments, allocations and distributions in
receives no fee for its services as general its capacity as general partner of the AIMCO
partner. Moreover, the general partner or Operating Partnership. In addition, the
certain affiliates may be entitled to AIMCO Operating Partnership is responsible
compensation for additional services for all expenses incurred relating to the
rendered. AIMCO Operating Partnership's ownership of
its assets and the operation of the
</TABLE>
S-78
<PAGE> 84
YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
<TABLE>
<S> <C>
AIMCO Operating Partnership and reimburses
the general partner for such expenses paid
by the general partner. The employees of the
AIMCO Operating Partnership receive
compensation for their services.
</TABLE>
Liability of Investors
<TABLE>
<S> <C>
Under your partnership's agreement of Except for fraud, willful misconduct or
limited partnership, so long as a limited gross negligence, no OP Unitholder has
partner does not take part in the control of personal liability for the AIMCO Operating
your partnership business, the liability of Partnership's debts and obligations, and
such limited partner for the losses, debts liability of the OP Unitholders for the
and obligations of your partnership will be AIMCO Operating Partnership's debts and
limited to the amounts contributed and obligations is generally limited to the
agreed to be contributed by such limited amount of their investment in the AIMCO
partnership to the capital of your Operating Partnership. However, the
partnership and such limited partner's share limitations on the liability of limited
of undistributed net profits; provided, partners for the obligations of a limited
however, that under applicable partnership partnership have not been clearly
law, a limited partner may be liable to your established in some states. If it were
partnership to the extent of previous determined that the AIMCO Operating Part-
distributions made it in the event that your nership had been conducting business in any
partnership does not have sufficient assets state without compliance with the applicable
to discharge its liabilities. limited partnership statute, or that the
right or the exercise of the right by the
holders of OP Units as a group to make
certain amendments to the AIMCO Operating
Partnership Agreement or to take other
action pursuant to the AIMCO Operating
Partnership Agreement constituted
participation in the "control" of the AIMCO
Operating Partnership's business, then a
holder of OP Units could be held liable
under certain circumstances for the AIMCO
Operating Partnership's obligations to the
same extent as the general partner.
</TABLE>
Fiduciary Duties
<TABLE>
<S> <C>
Under your partnership's agreement of Unless otherwise provided for in the
limited partnership, the general partner relevant partnership agreement, Delaware law
must devote such time and effort to your generally requires a general partner of a
partnership business as may be necessary to Delaware limited partnership to adhere to
promote adequately the interests of your fiduciary duty standards under which it owes
partnership and the mutual interest of the its limited partners the highest duties of
partners. However, the general partner is good faith, fairness and loyalty and which
not required to devote substantial time to generally prohibit such general partner from
your partnership business and any general taking any action or engaging in any
partner may at any time and from time to transaction as to which it has a conflict of
time engage in and possess interests in interest. The AIMCO Operating Partnership
other business ventures of any and every Agreement expressly authorizes the general
type and description, including, without partner to enter into, on behalf of the
limitation, the ownership, operation, AIMCO Operating Partnership, a right of
financing and management of real estate, first opportunity arrangement and other
which may be competitive with your conflict avoidance agreements with various
partnership, and neither your partnership affiliates of the AIMCO Operating
nor any partner will have any right, title Partnership and the general partner, on such
or interest in or to such independent terms as the general partner, in its sole
ventures. and absolute discretion, believes are
advisable. The AIMCO Operating Partnership
In general, your partnership's agreement of Agreement expressly limits the
limited
</TABLE>
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<PAGE> 85
YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
<TABLE>
<S> <C>
partnership and the AIMCO Operating liability of the general partner by
Partnership Agreement have limitations on providing that the general partner, and its
the liability of the general partner but officers and directors will not be liable or
such limitations differ and provide more accountable in damages to the AIMCO
protection for the general partner of the Operating Partnership, the limited partners
AIMCO Operating Partnership. or assignees for errors in judgment or
mistakes of fact or law or of any act or
omission if the general partner or such
director or officer acted in good faith. See
"Description of OP Units -- Fiduciary
Responsibilities" in the accompanying
Prospectus.
</TABLE>
Federal Income Taxation
<TABLE>
<S> <C>
In general, there are no material The AIMCO Operating Partnership is not
differences between the taxation of your subject to Federal income taxes. Instead,
partnership and the AIMCO Operating each holder of OP Units includes in income
Partnership. its allocable share of the AIMCO Operating
Partnership's taxable income or loss when it
determines its individual Federal income tax
liability.
Income and loss from the AIMCO Operating
Partnership may be subject to the passive
activity limitations. If an investment in an
OP Unit is treated as a passive activity,
income and loss from the AIMCO Operating
Partnership generally can be offset against
income and loss from other investments that
constitute "passive activities" (unless the
AIMCO Operating Partnership is considered a
"publicity traded partnership", in which
case income and loss from the AIMCO
Operating Partnership can only be offset
against other income and loss from the AIMCO
Operating Partnership). Income of the AIMCO
Operating Partnership, however, attributable
to dividends from the Management
Subsidiaries (as defined below) or interest
paid by the Management Subsidiaries does not
qualify as passive activity income and
cannot be offset against losses from
"passive activities."
Cash distributions by the AIMCO Operating
Partnership are not taxable to a holder of
OP Units except to the extent they exceed
such Partner's basis in its interest in the
AIMCO Operating Partnership (which will
include such OP Unitholder's allocable share
of the AIMCO Operating Partnership's nonre-
course debt).
Each year, OP Unitholders receive a Schedule
K-1 tax form containing tax information for
inclusion in preparing their Federal income
tax returns.
OP Unitholders are required, in some cases,
to file
</TABLE>
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<PAGE> 86
YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
<TABLE>
<S> <C>
state income tax returns and/or pay state
income taxes in the states in which the
AIMCO Operating Partnership owns property or
transacts business, even if they are not
residents of those states. The AIMCO
Operating Partnership may be required to pay
state income taxes in certain states.
</TABLE>
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS
YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS
Nature of Investment
<TABLE>
<CAPTION>
<S> <C> <C>
The partnership interests in your The Preferred OP Units constitute The Common OP Units constitute
partnership constitute equity in- equity interests entitling each equity interests entitling each OP
terests entitling each partner to holder of Preferred OP Units, when Unitholder to such partner's pro
its pro rata share of and as declared by the board of rata share of cash distributions
distributions to be made to the directors of the general partner made from Available Cash (as such
partners of your partnership. of the AIMCO Operating Part- term is defined in the AIMCO
nership, quarterly cash distribu- Operating Partnership Agreement)
tion at a rate of $0.50 per to the partners of the AIMCO
Preferred OP Unit, subject to ad- Operating Partnership. To the
justments from time to time on or extent the AIMCO Operating
after the fifth anniversary of the Partnership sells or refinances
issue date of the Preferred OP its assets, the net proceeds
Units. therefrom generally will be re-
tained by the AIMCO Operating
Partnership for working capital
and new investments rather than
being distributed to the OP
Unitholders (including AIMCO).
</TABLE>
Voting Rights
<TABLE>
<S> <C> <C>
Under your partnership's Except as otherwise required Under the AIMCO Operating
agreement of limited by applicable law or in the Partnership Agreement, the
partnership, the general AIMCO Operating Partnership OP Unitholders have voting
partners may not volunta- Agreement, the holders of rights only with respect to
rily sell all or the Preferred OP Units will certain limited matters such
substantially all of your have the same voting rights as certain amendments and
partnership's assets at one as holders of the Common OP termination of the AIMCO
time unless not less than Units. See "Description of Operating Partnership
sixty days prior to the date OP Units" in the accompany- Agreement and certain
of such sale the general ing Prospectus. So long as transactions such as the
partners deliver to the any Preferred OP Units are institution of bankruptcy
Class A limited partners and outstanding, in addition to proceedings, an assignment
Class D limited partners, in any other vote or consent of for the benefit of creditors
writing, their intention to partners required by law or and certain transfers by the
sell and during the by the AIMCO Operating general partner of its
thirty-day period im- Partnership Agreement, the interest in the AIMCO
mediately following the affirmative vote or consent Operating Partnership or the
giving of such notice, they of holders of at least 50% admission of a successor
do not receive written of the general partner.
objection to such sale from
the Class A and Class D
</TABLE>
S-81
<PAGE> 87
YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS
<TABLE>
<S> <C> <C>
limited partners who own outstanding Preferred OP
more than one-half of the Units will be necessary for Under the AIMCO Operating
outstanding Class A and effecting any amendment of Partnership Agreement, the
Class D units. Upon a vote any of the provisions of the general partner has the
of the majority in interest Partnership Unit Designation power to effect the
of the Class A and Class B of the Preferred OP Units acquisition, sale, transfer,
limited partners, without that materially and exchange or other
the consent of the general adversely affects the rights disposition of any assets of
partners, such limited or preferences of the the AIMCO Operating
partners may, amend your holders of the Preferred OP Partnership (including, but
partnership's agreement of Units. The creation or not limited to, the exercise
limited partnership, subject issuance of any class or or grant of any conversion,
to certain exceptions, series of partnership units, option, privilege or
dissolve your partnership including, without subscription right or any
and remove any of the limitation, any partner- other right available in
general partners. ship units that may have connection with any assets
rights senior or superior to at any time held by the
A general partner may cause the Preferred OP Units, AIMCO Operating Partnership)
the dissolution of your shall not be deemed to or the merger,
partnership by retiring. materially adversely affect consolidation,
Your partnership may then be the rights or preferences of reorganization or other
continued by the remaining the holders of Preferred OP combination of the AIMCO
general partner or, if no Units. With respect to the Operating Partnership with
general partner remains, the exercise of the above or into another entity, all
Class A and Class D limited described voting rights, without the consent of the
partners may elect to each Preferred OP Units OP Unitholders.
continue your partner- shall have one (1) vote per
ship's business by unanimous Preferred OP Unit. The general partner may
consent within ninety days cause the dissolution of the
after the retirement of the AIMCO Operating Partnership
general partner. by an "event of withdrawal,"
as defined in the Delaware
In general, you have greater Limited Partnership Act
voting rights in your (including, without limi-
partnership than you will tation, bankruptcy), unless,
have as an OP Unitholder. OP within 90 days after the
Unitholders cannot remove withdrawal, holders of a
the general partner of the "majority in interest," as
AIMCO Operating Partnership. defined in the Delaware
Limited Partnership Act,
agree in writing, in their
sole and absolute
discretion, to continue the
business of the AIMCO
Operating Partnership and to
the appointment of a
successor general partner.
The general partner may
elect to dissolve the AIMCO
Operating Partnership in its
sole and absolute
discretion, with or without
the consent of the OP
Unitholders. See "Descrip-
tion of OP
Units -- Dissolution and
Winding Up" in the accom-
panying Prospectus.
OP Unitholders cannot remove
the general partner of the
</TABLE>
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<PAGE> 88
YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS
<TABLE>
<S> <C> <C>
AIMCO Operating Partnership
with or without cause.
</TABLE>
Distributions
<TABLE>
<S> <C> <C>
Your partnership's agreement Holders of Preferred OP Subject to the rights of
of limited partnership Units will be entitled to holders of any outstanding
specifies how the cash receive, when and as Preferred OP Units, the
available for distribution, declared by the board of AIMCO Operating Partnership
whether arising from directors of the general Agreement requires the
operations or sales or partner of the AIMCO general partner to cause the
refinancing, is to be shared Operating Partnership, AIMCO Operating Partnership
among the partners. Dis- quarterly cash distributions to distribute quarterly all,
tributions of Net Cash Flow at the rate of $0.50 per or such portion as the
(as defined in your Preferred OP Unit; provided, general partner may in its
partnership's agreement of however, that at any time sole and absolute discretion
limited partnership) are to and from time to time on or determine, of Available Cash
be made within ninety days after the fifth anniversary (as defined in the AIMCO
after the end of each year. of the issue date of the Operating Partnership
The distributions payable to Preferred OP Units, the Agreement) generated by the
the partners are not fixed AIMCO Operating Partnership AIMCO Operating Partnership
in amount and depend upon may adjust the annual during such quarter to the
the operating results and distribution rate on the general partner, the special
net sales or refinancing Preferred OP Units to the limited partner and the
proceeds available from the lower of (i) 2.00% plus the holders of Common OP Units
disposition of your part- annual interest rate then on the record date es-
nership's assets. applicable to U.S. Treasury tablished by the general
notes with a maturity of partner with respect to such
five years, and (ii) the quarter, in accordance with
annual dividend rate on the their respective interests
most recently issued AIMCO in the AIMCO Operating
non-convertible preferred Partnership on such record
stock which ranks on a date. Holders of any other
parity with its Class H Preferred OP Units issued in
Cumulative Preferred Stock. the future may have priority
Such distributions will be over the general partner,
cumulative from the date of the special limited partner
original issue. Holders of and holders of Common OP
Preferred OP Units will not Units with respect to
be entitled to receive any distributions of Available
distributions in excess of Cash, distributions upon
cumulative distributions on liquidation or other
the Preferred OP Units. No distributions. See "Per
interest, or sum of money in Share and Per Unit Data" in
lieu of interest, shall be the accompanying Prospectus.
payable in respect of any
distribution payment or pay- The general partner in its
ments on the Preferred OP sole and absolute discretion
Units that may be in may distribute to the OP
arrears. Unitholders Available Cash
on a more frequent basis and
When distributions are not provide for an appropriate
paid in full upon the record date.
Preferred OP Units or any
Parity Units (as defined The AIMCO Operating Partner-
below), all distributions ship Agreement requires the
declared upon the Preferred general partner to take such
OP Units and any Parity reasonable efforts, as
Units shall be declared determined by
ratably in proportion to the
respective amounts of
distributions accumulated,
ac-
</TABLE>
S-83
<PAGE> 89
YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS
<TABLE>
<S> <C> <C>
crued and unpaid on the Pre- it in its sole and absolute
ferred OP Units and such discretion and consistent
Parity Units. Unless full with AIMCO's qualification
cumulative distributions on as a REIT, to cause the
the Preferred OP Units have AIMCO Operating Partnership
been declared and paid, to distribute sufficient
except in limited circum- amounts to enable the
stances, no distributions general partner to transfer
may be declared or paid or funds to AIMCO and enable
set apart for payment by the AIMCO to pay stockholder
AIMCO Operating Partnership dividends that will (i)
and no other distribution of satisfy the requirements for
cash or other property may qualifying as a REIT under
be declared or made, the Code and the Treasury
directly or indirectly, by Regulations and (ii) avoid
the AIMCO Operating any Federal income or excise
Partnership with respect to tax liability of AIMCO. See
any Junior Units (as de- "Description of OP
fined below), nor shall any Units -- Distributions" in
Junior Units be redeemed, the accompanying Prospectus.
purchased or otherwise
acquired for considera-
tion, nor shall any other
cash or other property be
paid or distributed to or
for the benefit of holders
of Junior Units. See
"Description of Preferred OP
Units -- Distributions."
</TABLE>
Liquidity and Transferability/Redemption Rights
<TABLE>
<CAPTION>
<S> <C> <C>
A limited partner may There is no public market There is no public market
transfer his units to any for the Preferred OP Units for the OP Units. The AIMCO
person if: (1) the general and the Preferred OP Units Operating Partnership
partners consent, the are not listed on any Agreement restricts the
granting of which will be in securities exchange. The transferability of the OP
the general partners' Preferred OP Units are Units. Until the expiration
absolute discretion, (2) the subject to restrictions on of one year from the date on
transfer, in the opinion of transfer as set forth in the which an OP Unitholder
your partnership's counsel, AIMCO Operating Partnership acquired OP Units, subject
does not result in a Agreement. to certain exceptions, such
termination of your OP Unitholder may not
partnership for tax Pursuant to the AIMCO transfer all or any por-
purposes, (3) the transferee Operating Partnership tion of its OP Units to any
did not own any interest in Agreement, until the transferee without the
your partnership's property expiration of one year from consent of the general
or in an entity which owned the date on which a holder partner, which consent may
any interest in your part- of Preferred OP Units be withheld in its sole and
nership's property in 1980 acquired Preferred OP Units, absolute discretion. After
and (4) the transfer, in the subject to certain the expiration of one year,
opinion of counsel to your exceptions, such holder of such OP Unitholder has the
partnership, may be effected Preferred OP Units may not right to transfer all or any
without registration under transfer all or any portion portion of its OP Units to
applicable securities laws. of its Preferred OP Units to any person, subject to the
A transferee may become a any transferee without the satisfaction of certain con-
substitute partner if, in consent of the general ditions specified in the
addition to the foregoing partner, which consent may AIMCO Operating Partnership
conditions: (1) the assignor be withheld in its sole and Agreement, including the
gives the assignee such absolute discretion. After general partner's right of
right, (2) the assignee pays the expiration of one year, first refusal. See
the costs and expenses such holders
incurred in
</TABLE>
S-84
<PAGE> 90
YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS
<TABLE>
<S> <C> <C>
connection with such of Preferred OP Units has "Description of OP Units --
substitution and (3) the the right to transfer all or Transfers and Withdrawals"
assignee fulfills such other any portion of its Preferred in the accompanying
conditions as may be re- OP Units to any person, Prospectus.
quired by the general subject to the satisfaction
partner. of certain conditions After the first anniversary
There are no redemption specified in the AIMCO of becoming a holder of
rights associated with your Operating Partnership Common OP Units, an OP
units. Agreement, including the Unitholder has the right,
general partner's right of subject to the terms and
first refusal. conditions of the AIMCO
Operating Partnership
After a one-year holding Agreement, to require the
period, a holder may redeem AIMCO Operating Partnership
Preferred OP Units and to redeem all or a portion
receive in exchange of the Common OP Units held
therefor, at the AIMCO Oper- by such party in exchange
ating Partnership's option, for a cash amount based on
(i) subject to the terms of the value of shares of Class
any Senior Units (as defined A Common Stock. See
below), cash in an amount "Description of OP
equal to the Liquidation Units -- Redemption Rights"
Preference of the Preferred in the accompanying
OP Units tendered for Prospectus. Upon receipt of
redemption, (ii) a number of a notice of redemption, the
shares of Class A Common AIMCO Operating Partnership
Stock of AIMCO that is equal may, in its sole and
in Value to the Liquidation absolute discretion but
Preference of the Preferred subject to the restrictions
OP Units tendered for on the ownership of Class A
redemption, or (iii) for Common Stock imposed under
Preferred OP Units redeemed AIMCO's charter and the
after a two-year holding transfer restrictions and
period, a number of shares other limitations thereof,
of Class I Preferred Stock elect to cause AIMCO to
of AIMCO that pay an acquire some or all of the
aggregate amount of tendered Common OP Units in
dividends equivalent to the exchange for Class A Common
distributions on the Stock, based on an exchange
Preferred OP Units tendered ratio of one share of Class
for redemption; provided A Common Stock for each Com-
that such shares are part of mon OP Unit, subject to
a class or series of adjustment as provided in
preferred stock that is then the AIMCO Operating
listed on the NYSE or an- Partnership Agreement.
other national securities
exchange. See "Federal
Income Tax
Consequences -- Disguised
Sales." The Preferred OP
Units may not be redeemed at
the option of the AIMCO
Operating Partnership. See
"Description of Preferred OP
Units -- Redemption."
</TABLE>
S-85
<PAGE> 91
DESCRIPTION OF PREFERRED OP UNITS
GENERAL
The Preferred OP Units are the Class Two Partnership Preferred Units of the
AIMCO Operating Partnership.
RANKING
The Preferred OP Units will, with respect to distribution rights and rights
upon liquidation, dissolution or winding up of the AIMCO Operating Partnership,
effectively rank:(i) prior or senior to the Class I High Performance Units, the
Common OP Units and any other interest in the AIMCO Operating Partnership if the
holders of Preferred OP Units shall be entitled to the receipt of distributions
and amounts distributable upon liquidation, dissolution or winding up in
preference or priority to the holders of such interest (the Common OP Units and
such other interests are collectively referred to herein as "Junior Units");
(ii) on a parity with the Class B Partnership Preferred Units, the Class C
Partnership Preferred Units, the Class D Partnership Preferred Units, the Class
G Partnership Preferred Units, the Class H Partnership Preferred Units, the
Class J Partnership Preferred Units, the Class K Partnership Preferred Units and
with any other interest in the AIMCO Operating Partnership if the holders of
such interest and the Preferred OP Units shall be entitled to the receipt of
distributions and amounts distributable upon liquidation, dissolution or winding
up in proportion to their respective amounts of accumulated, accrued and unpaid
distributions or stated preferences, without preference or priority of one over
the other ("Parity Units"); and (iii) junior to the Class F Partnership
Preferred Units, the Class One Partnership Preferred Units and any other
interest in the AIMCO Operating Partnership if the holders of such interest
shall be entitled to the receipt of distributions or amounts distributable upon
liquidation, dissolution or winding up in preference or priority to the holders
of the Preferred OP Units ("Senior Units"). Junior Units, Parity Units and
Senior Units may be issued from time to time by the AIMCO Operating Partnership
without any approval or consent by holders of the Preferred OP Units.
Although proceeds upon liquidation, dissolution or winding up of the AIMCO
Operating Partnership will be made in accordance with the positive balance of
all partners capital accounts, the AIMCO Operating Partnership creates, to the
extent possible, the preference upon such events by specially allocating income,
if necessary, to the Preferred OP Units in an amount equal to their liquidation
preference.
DISTRIBUTIONS
Holders of Preferred OP Units are entitled to receive, when and as declared
by the board of directors of the general partner of the AIMCO Operating
Partnership, quarterly cash distributions at the rate of $0.50 per Preferred OP
Unit (equivalent to 8.0% per annum of the $25 stated liquidation preference);
provided, however, that at any time and from time to time on or after March 1,
2005, the AIMCO Operating Partnership may adjust the annual distribution rate on
the Preferred OP Units to the lower of (i) 2.0% plus the annual interest rate
then applicable to U.S. Treasury notes with a maturity of five years, and (ii)
the annual dividend rate on the most recently issued AIMCO non-convertible
preferred stock which ranks on a parity with its Class H Cumulative Preferred
Stock. A reduction in the distribution rate will reduce your rate of return on
the Preferred OP Units and possibly encourage you to redeem such units. Such
adjustment shall become effective upon the date the AIMCO Operating Partnership
issues a notice to such effect to the holders of the Preferred OP Units. Such
distributions are cumulative from the date of original issue, whether or not in
any distribution period or periods such distributions have been declared, and
shall be payable quarterly on February 15, May 15, August 15 and November 15 of
each year (or, if not a business day, the next succeeding business day) (each a
"Distribution Payment Date"), commencing on the first such date occurring after
the date of original issue. If the Preferred OP Units are issued on any day
other than a Distribution Payment Date, the first distribution payable on such
Preferred OP Units will be prorated for the portion of the quarterly period that
such Preferred OP Units are outstanding on the basis of twelve 30-day months and
a 360-day year. Distributions are payable in arrears to holders of record as
they appear on the records of the AIMCO Operating Partnership at the close of
business on the February 1, May 1, August 1 or
S-86
<PAGE> 92
November 1, as the case may be, immediately preceding each Distribution Payment
Date. Holders of Preferred OP Units will not be entitled to receive any
distributions in excess of cumulative distributions on the Preferred OP Units.
No interest, or sum of money in lieu of interest, shall be payable in respect of
any distribution payment or payments on the Preferred OP Units that may be in
arrears. Holders of any Preferred OP Units that are issued after the date of
original issuance are entitled to receive the same distributions as holders of
any Preferred OP Units issued on the date of original issuance.
When distributions are not paid in full upon the Preferred OP Units or any
Parity Units, or a sum sufficient for such payment is not set apart, all
distributions declared upon the Preferred OP Units and any Parity Units shall be
declared ratably in proportion to the respective amounts of distributions
accumulated, accrued and unpaid on the Preferred OP Units and accumulated,
accrued and unpaid on such Parity Units. Except as set forth in the preceding
sentence, unless distributions on the Preferred OP Units equal to the full
amount of accumulated, accrued and unpaid distributions have been or
contemporaneously are declared and paid, or declared and a sum sufficient for
the payment thereof has been or contemporaneously is set apart for such payment,
for all past distribution periods, no distributions shall be declared or paid or
set apart for payment by the AIMCO Operating Partnership with respect to any
Parity Units. Unless full cumulative distributions (including all accumulated,
accrued and unpaid distributions) on the Preferred OP Units have been declared
and paid, or declared and set apart for payment, for all past distribution
periods, no distributions (other than distributions or distributions paid in
Junior Units or options, warrants or rights to subscribe for or purchase Junior
Units) may be declared or paid or set apart for payment by the AIMCO Operating
Partnership and no other distribution of cash or other property may be declared
or made, directly or indirectly, by the AIMCO Operating Partnership with respect
to any Junior Units, nor shall any Junior Units be redeemed, purchased or
otherwise acquired (except for a redemption, purchase or other acquisition of
Common OP Units made for purposes of an employee incentive or benefit plan of
AIMCO, the AIMCO Operating Partnership or any subsidiary) for any consideration
(or any monies be paid to or made available for a sinking fund for the
redemption of any such Junior Units), directly or indirectly, by the AIMCO
Operating Partnership (except by conversion into or exchange for Junior Units,
or options, warrants or rights to subscribe for or purchase Junior Units), nor
shall any other cash or other property be paid or distributed to or for the
benefit of holders of Junior Units. Notwithstanding the foregoing provisions of
this paragraph, the AIMCO Operating Partnership shall not be prohibited from (i)
declaring or paying or setting apart for payment any distribution on any Parity
Units or (ii) redeeming, purchasing or otherwise acquiring any Parity Units, in
each case, if such declaration, payment, redemption, purchase or other
acquisition is necessary to maintain AIMCO's qualification as a REIT.
ALLOCATION
Holders of Preferred OP Units will be allocated net income of the AIMCO
Operating Partnership in an amount equal to the distributions made on such
holder's Preferred OP Units during the taxable year. Holders of Preferred OP
Units also will generally be allocated any net loss of the AIMCO Operating
Partnership that is not allocated to holders of Common OP Units or other
interests of the AIMCO Operating Partnership.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the AIMCO Operating Partnership, before any allocation of income or gain by the
AIMCO Operating Partnership shall be made to or set apart for the holders of any
Junior Units, to the extent possible, the holders of Preferred OP Units shall be
entitled to be allocated income and gain to effectively enable them to receive a
liquidation preference (the "Liquidation Preference") of $25 per Preferred OP
Unit, plus accumulated, accrued and unpaid distributions (whether or not earned
or declared) to the date of final distribution to such holders; but such holders
shall not be entitled to any further allocation of income or gain. Until the
holders of the Preferred OP Units have been paid the Liquidation Preference in
full, no allocation of income or gain will be made to any holder of Junior Units
upon the liquidation, dissolution or winding up of the AIMCO Operating
Partnership. If, upon any liquidation, dissolution or winding up of the AIMCO
Operating Partnership, the assets of the AIMCO Operating Partnership, or
proceeds thereof, distributable among the holders of Preferred OP Units shall be
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insufficient to pay in full the above described preferential amount and
liquidating payments on any Parity Units, then following certain allocations
made by the AIMCO Operating Partnership, such assets, or the proceeds thereof,
shall be distributed among the holders of Preferred OP Units and any such Parity
Units ratably in the same proportion as the respective amounts that would be
payable on such Preferred OP Units and any such Parity Units if all amounts
payable thereon were paid in full. A voluntary or involuntary liquidation,
dissolution or winding up of the AIMCO Operating Partnership will not include a
consolidation or merger of the AIMCO Operating Partnership with one or more
partnerships, corporations or other entities, or a sale or transfer of all or
substantially all of the AIMCO Operating Partnership's assets. Upon any
liquidation, dissolution or winding up of the AIMCO Operating Partnership, after
all allocations shall have been made in full to the holders of Preferred OP
Units and any Parity Units to enable them to receive their Liquidation
Preference, any Junior Units shall be entitled to receive any and all assets
remaining to be paid or distributed, and the holders of the Preferred OP Units
and any Parity Units shall not be entitled to share therein.
REDEMPTION
The Preferred OP Units may not be redeemed at the option of the AIMCO
Operating Partnership, and will not be required to be redeemed or repurchased by
the AIMCO Operating Partnership or AIMCO except if a holder of a Preferred OP
Unit effects a redemption, as described below. The AIMCO Operating Partnership
or AIMCO may purchase Preferred OP Units from time to time in the open market,
by tender or exchange offer, in privately negotiated purchases or otherwise.
After a one-year holding period, a holder may redeem Preferred OP Units and
receive in exchange therefor, at the AIMCO Operating Partnership's option, (i)
subject to the terms of any Senior Units, cash in an amount equal to the
Liquidation Preference of the Preferred OP Units tendered for redemption, (ii) a
number of shares of Class A Common Stock of AIMCO that is equal in Value to the
Liquidation Preference of the Preferred OP Units tendered for redemption, or
(iii) for Preferred OP Units redeemed after a two-year holding period, a number
of shares of Class I Preferred Stock of AIMCO that pay an aggregate amount of
dividends equivalent to the distributions on the Preferred OP Units tendered for
redemption; provided that such shares are part of a class or series of preferred
stock that is then listed on the NYSE or another national securities exchange.
The "Value" of shares of Class A Common Stock will be determined based on a
10-day average trading price of the shares, as set forth in the AIMCO Operating
Partnership's agreement of limited partnership. Before issuing any preferred
stock upon redemption of Preferred OP Units, AIMCO will register the issuance
and sale of such shares under the Securities Act of 1933. If shares of Class I
Preferred Stock or Class A Common Stock of AIMCO are issued in exchange for any
Preferred OP Units tendered for redemption, the Preferred OP Units that are
acquired by AIMCO will be converted to a class of AIMCO Operating Partnership
units that corresponds to the class of stock so issued.
VOTING RIGHTS
Except as otherwise required by applicable law or in the AIMCO Operating
Partnership's agreement of limited partnership, the holders of the Preferred OP
Units will have the same voting rights as holders of the Common OP Units. See
"Description of OP Units" in the accompanying Prospectus. So long as any
Preferred OP Units are outstanding, in addition to any other vote or consent of
partners required by law or by the AIMCO Operating Partnership's agreement of
limited partnership, the affirmative vote or consent of holders of at least 50%
of the outstanding Preferred OP Units will be necessary for effecting any
amendment of any of the provisions of the Partnership Unit Designation of the
Preferred OP Units that materially and adversely affects the rights or
preferences of the holders of the Preferred OP Units. The creation or issuance
of any class or series of AIMCO Operating Partnership units, including, without
limitation, any AIMCO Operating Partnership units that may have rights senior or
superior to the Preferred OP Units, will not be deemed to materially adversely
affect the rights or preferences of the holders of Preferred OP Units. With
respect to the exercise of the above described voting rights, each Preferred OP
Unit will have one (1) vote per Preferred OP Unit.
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RESTRICTIONS ON TRANSFER
Preferred OP Units will be subject to the same restrictions on transfer
applicable to Common OP Units, as set forth in the AIMCO Operating Partnership's
agreement of limited partnership.
DESCRIPTION OF CLASS I PREFERRED STOCK
The Class I Preferred Stock (a) ranks prior to the Class A Common Stock and
the Class E Preferred Stock, and any other class or series of capital stock of
AIMCO if the holders of the Class I Preferred Stock are to be entitled to the
receipt of dividends or of amounts distributable upon liquidation, dissolution,
and winding-up in preference or priority to the holders of shares of such class
or series ("Class I Junior Stock"), (b) ranks on a parity with the Class B
Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the
Class G Preferred Stock, the Class H Preferred Stock, the Class J Preferred
Stock and with any other class or series of capital stock of AIMCO, if the
holders of such class of stock or series and the Class I Preferred Stock are
entitled to the receipt of dividends and of amounts distributable upon
liquidation, dissolution or winding-up in proportion to their respective amounts
of accrued and unpaid dividends per share or liquidation preferences, without
preference or priority one over the other ("Class I Parity Stock") and (c) ranks
junior to any class or series of capital stock of AIMCO if the holders of such
class or series are entitled to the receipt of dividends or amounts
distributable upon liquidation, dissolution or winding-up in preference or
priority to the holders of the Class I Preferred Stock ("Class I Senior Stock").
Holders of Class I Preferred Stock are entitled to receive cash dividends
at the rate of 8.0% per annum of the $25 liquidation preference (equivalent to
$2.00 per annum per share). Such dividends are cumulative from the date of
original issue, and are payable quarterly on or before January 15, April 15,
July 15 and October 15 of each year, commencing July 15, 1999. Upon any
liquidation, dissolution or winding up of AIMCO, before payment or distribution
by AIMCO may be made to or set apart for the holders of any shares of Class I
Junior Stock, the holders of Class I Preferred Stock are entitled to receive a
liquidation preference of $25 per share (the "Class I Liquidation Preference"),
plus an amount equal to all accumulated, accrued and unpaid dividends to the
date of final distribution to such holders; but such holders shall not be
entitled to any further payment. If proceeds available for distribution are
insufficient to pay the preference described above and any liquidating payments
on any other shares of any class or series of Class I Parity Stock, then such
proceeds will be distributed among the holders of Class I Preferred Stock and
any such other Class I Parity Stock ratably in the same proportion as the
respective amount that would be payable on such Class I Preferred Stock and any
such other Class I Parity Stock if all amounts payable thereon were paid in
full.
On and after March 1, 2005, AIMCO may redeem shares of Class I Preferred
Stock, in whole or in part, at a cash redemption price equal to 100% of the
Class I Liquidation Preference plus all accrued and unpaid dividends to the date
fixed for redemption. The Class I Preferred Stock has no stated maturity and is
not subject to any sinking fund or mandatory redemption provisions.
Holders of shares of Class I Preferred Stock have no voting rights, except
that if distributions on Class I Preferred Stock or any series or class of Class
I Parity Stock are in arrears for six or more quarterly periods, the number of
directors constituting the AIMCO board of directors will be increased by two and
the holders of Class I Preferred Stock (voting together as a single class with
all other shares of Class I Parity Stock, which are entitled to similar voting
rights) will be entitled to vote for the election of the two additional
directors of AIMCO at any annual meeting of stockholders or at a special meeting
of the holders of the Class I Preferred Stock called for the purpose. The
affirmative vote of the holders of two-thirds of the outstanding shares of Class
I Preferred Stock will be required to amend the AIMCO charter in any manner that
would adversely affect the rights of the holders of Class I Preferred Stock, and
to approve the issuance of any capital stock that ranks senior to the Class I
Preferred Stock with respect to payment of dividends or upon liquidation,
dissolution, winding up or otherwise.
Ownership of shares of Class I Preferred Stock by any person will be
limited such that the sum of the aggregate value of all capital stock of AIMCO
(including all shares of Class I Preferred Stock) owned directly or
constructively by such person may not exceed 8.7% (or 15% in the case of certain
pension trusts,
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registered investment companies and Mr. Considine) of the aggregate value of all
shares of capital stock of AIMCO over (ii) the aggregate value of all shares of
capital stock of AIMCO (the "Class I Preferred Ownership Limit"). The AIMCO
board of directors may waive such ownership limit if evidence satisfactory to
the AIMCO board of directors and AIMCO's tax counsel is presented that such
ownership will not then or in the future jeopardize AIMCO's status as a REIT. As
a condition of such waiver, the AIMCO board of directors may require opinions of
counsel satisfactory to it and/or an undertaking from the applicant with respect
to preserving the REIT status of AIMCO. If shares of Class I Preferred Stock in
excess of the Class I Preferred Ownership Limit, or shares of Class I Preferred
Stock which would result in AIMCO being "closely held," within the meaning of
Section 856(h) of the Code, or which would otherwise result in AIMCO failing to
qualify as a REIT, are issued or transferred to any person, such issuance or
transfer will be null and void to the intended transferee, and the intended
transferee would acquire no rights to the Class I Preferred Stock. Shares of
Class I Preferred Stock transferred in excess of the Class I Preferred Ownership
Limit or other applicable limitations will automatically be transferred to a
trust for the exclusive benefit of one or more qualifying charitable
organizations to be designated by AIMCO. Shares transferred to such trust will
remain outstanding, and the trustee of the trust will have all voting and
dividend rights pertaining to such shares. The trustee of such trust may
transfer such shares to a person whose ownership of such shares does not violate
the Class I Preferred Ownership Limit or other applicable limitation. Upon a
sale of such shares by the trustee, the interest of the charitable beneficiary
will terminate, and the sales proceeds would be paid, first, to the original
intended transferee, to the extent of the lesser of (a) such transferee's
original purchase price (or the original market value of such shares if
purportedly acquired by gift or devise) and (b) the price received by the
trustee, and, second, any remainder to the charitable beneficiary. In addition,
shares of Class I Preferred Stock held in such trust are purchasable by AIMCO
for a 90-day period at a price equal to the lesser of the price paid for the
Class I Preferred Stock by the original intended transferee (or the original
market value of such shares if purportedly acquired by gift or devise) and the
market price for the Class I Preferred Stock on the date that AIMCO determines
to purchase the Class I Preferred Stock. The 90-day period commences on the date
of the violative transfer or the date that the AIMCO board of directors
determines in good faith that a violative transfer has occurred, whichever is
later. All certificates representing shares of Class I Preferred Stock bear a
legend referring to the restrictions described above.
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COMPARISON OF PREFERRED OP UNITS AND
CLASS I PREFERRED STOCK
PREFERRED OP UNITS
CLASS I PREFERRED STOCK
Nature of Investment
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The Preferred OP Units constitute equity The Class I Preferred Stock constitutes an
interests entitling each holder of Preferred equity interest entitling each holder of
OP Units to receive, when and as declared by Class I Preferred Stock to receive, when and
the board of directors of the general as declared by the AIMCO board of directors,
partner of the AIMCO Operating Partnership, cash distribution at a rate of $2.00 per
quarterly cash distribution at a rate of annum per share.
$0.50 per Preferred OP Unit, subject to
adjustments from time to time on or after
the fifth anniversary of the issue date of
the Preferred OP Units.
</TABLE>
Voting Rights
<TABLE>
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Except as otherwise required by applicable Holders of Class I Preferred Stock do not
law or in the AIMCO Operating Partnership's have any voting rights, except as set forth
agreement of limited partnership, the below and except as otherwise required by
holders of the Preferred OP Units will have applicable law.
the same voting rights as holders of the
Common OP Units. See "Description of OP If and whenever dividends on any shares of
Units" in the accompanying Prospectus. So Class I Preferred Stock or any series or
long as any Preferred OP Units are class of Class I Parity Stock are in arrears
outstanding, in addition to any other vote for six or more quarterly periods (whether
or consent of partners required by law or by or not consecutive), the number of directors
the AIMCO Operating Partnership's agreement then constituting the AIMCO board of
of limited partnership, the affirmative vote directors shall be increased by two (if not
or consent of holders of at least 50% of the already increased by reason of similar types
outstanding Preferred OP Units will be of provisions with respect to shares of
necessary for effecting any amendment of any voting preferred stock), and the holders of
of the provisions of the Partnership Unit shares of Class I Preferred Stock, together
Designation of the Preferred OP Units that with the holders of shares of all other
materially and adversely affects the rights voting preferred stock then entitled to
or preferences of the holders of the exercise similar voting rights, voting as a
Preferred OP Units. The creation or issuance single class regardless of series, will be
of any class or series of AIMCO Operating entitled to vote for the election of two
Partnership units, including, without additional directors of AIMCO. Whenever
limitation, any AIMCO Operating Partnership dividends in arrears and dividends for the
units that may have rights senior or current quarterly dividend period have been
superior to the Preferred OP Units, will not paid or declared and set aside in respect of
be deemed to materially adversely affect the the outstanding shares of the Class I
rights or preferences of the holders of Preferred Stock and the voting preferred
Preferred OP Units. With respect to the stock, then the right of the holders of
exercise of the above described voting Class I Preferred Stock and the voting
rights, each Preferred OP Units will have preferred stock to elect such additional two
one (1) vote per Preferred OP Unit. directors will cease and the terms of office
of such directors will terminate.
The affirmative vote or consent of at least
66 2/3% of the votes entitled to be cast by
the holders of Class I Preferred Stock and
Class I Parity Stock entitled to vote on
such matters, voting as a single class, will
be required to (i) authorize, create,
increase the authorized amount of, or issue
any shares of any class of Class I Senior
Stock or any security convertible into
shares of any class of Class I Senior Stock,
or (ii) amend, alter or repeal any provision
of, or add any provision to, the AIMCO
charter or
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PREFERRED OP UNITS CLASS I PREFERRED STOCK
<TABLE>
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by-laws, if such action would materially
adversely affect the voting powers, rights
or preferences of the holders of the Class I
Preferred Stock; provided, however, that no
such vote of the Class I Preferred
Stockholders shall be required if, at or
prior to the time such proposed change,
provisions are made for the redemption of
all outstanding shares of Class I Preferred
Stock. The amendment of the AIMCO charter to
authorize, create, increase or decrease the
authorized amount of or to issue Class I
Junior Stock, Class I Preferred Stock or any
shares of any class of Class I Parity Stock
shall not be deemed to materially adversely
affect the voting powers, rights or
preferences of the holders of Class I
Preferred Stock.
With respect to the exercise of the above
described voting rights, each share of Class
I Preferred Stock will have one vote per
share, except that when any other class or
series of preferred stock has the right to
vote with the Class I Preferred Stock as a
single class, then the Class I Preferred
Stock and such other class or series shall
have one quarter of one vote per $25 of
stated liquidation preference.
</TABLE>
Distributions
<TABLE>
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Holders of Preferred OP Units are entitled Holders of Class I Preferred Stock are
to receive, when and as declared by the entitled to receive, when and as declared by
board of directors of the general partner of the AIMCO board of directors, out of funds
the AIMCO Operating Partnership, quarterly legally available for payment, cash
cash distributions at the rate of $0.50 per dividends at the rate of $2.00 per annum per
Preferred OP Unit; provided, however, that share. Such dividends are cumulative from
at any time and from time to time on or the date of original issue. Holders of Class
after the fifth anniversary of the issue I Preferred Stock are not be entitled to
date of the Preferred OP Units, the AIMCO receive any dividends in excess of
Operating Partnership may adjust the annual cumulative dividends on the Class I
distribution rate on the Preferred OP Units Preferred Stock. No interest, or sum of
to the lower of (i) 2.00% plus the annual money in lieu of interest, shall be payable
interest rate then applicable to U.S. in respect of any dividend payment or
Treasury notes with a maturity of five payments on the Class I Preferred Stock that
years, and (ii) the annual dividend rate on may be in arrears.
the most recently issued AIMCO
non-convertible preferred stock which ranks When dividends are not paid in full upon the
on a parity with its Class H Cumulative Class I Preferred Stock or any other class
Preferred Stock. Such distributions will be or series of Class I Parity Stock, all
cumulative from the date of original issue. dividends declared upon the Class I
Holders of Preferred OP Units will not be Preferred Stock and any shares of Class I
entitled to receive any distributions in Parity Stock will be declared ratably in
excess of cumulative distributions on the proportion to the respective amounts of
Preferred OP Units. No interest, or sum of dividends accumulated, accrued and unpaid on
money in lieu of interest, shall be payable the Class I Preferred Stock and such Class I
in respect of any distribution payment or Parity Stock. Unless dividends equal to the
payments on the Preferred OP Units that may full amount of all accumulated, accrued and
be in arrears. unpaid dividends on the Class I Preferred
Stock have been paid, or declared and set
When distributions are not paid in full upon apart for payment, except in limited
the Preferred OP Units or any Parity Units, circumstances, no dividends may be declared
all or paid or set apart for
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PREFERRED OP UNITS CLASS I PREFERRED STOCK
<TABLE>
<S> <C>
distributions declared upon the Preferred OP payment by AIMCO and no other distribution
Units and any Parity Units will be declared of cash or other property may be declared or
ratably in proportion to the respective made, directly or indirectly, by AIMCO with
amounts of distributions accumulated, respect to any shares of Class I Junior
accrued and unpaid on the Preferred OP Units Stock, nor shall any shares of Class I
and such Parity Units. Unless full Junior Stock be redeemed, purchased or
cumulative distributions on the Preferred OP otherwise acquired for any consideration,
Units have been declared and paid, except in nor shall any other cash or other property
limited circumstances, no distributions may be paid or distributed to or for the benefit
be declared or paid or set apart for payment of holders of shares of Class I Junior
by the AIMCO Operating Partnership and no Stock. See "Description of Class I Preferred
other distribution of cash or other property Stock -- Dividends."
may be declared or made, directly or
indirectly, by the AIMCO Operating
Partnership with respect to any Junior
Units, nor shall any Junior Units be
redeemed, purchased or otherwise acquired
for consideration, nor shall any other cash
or other property be paid or distributed to
or for the benefit of holders of Junior
Units. See "Description of Preferred OP
Units -- Distributions."
</TABLE>
Liquidity and Transferability/Redemption
<TABLE>
<S> <C>
There is no public market for the Preferred Ownership of shares of Class I Preferred
OP Units and the Preferred OP Units are not Stock by any person will be limited such
listed on any securities exchange. The that the sum of the aggregate value of all
Preferred OP Units are subject to certain equity stock (including all shares of Class
restrictions on transferability set forth in I Preferred Stock) owned directly or
the AIMCO Operating Partnership Agreement. constructively by such person may not exceed
8.7% (or 15% in the case of certain parties)
Pursuant to the AIMCO Operating of the aggregate value of all outstanding
Partnership's agreement of limited shares of equity stock. Further, certain
partnership, until the expiration of one transfers which may have the effect of
year from the date on which a holder of causing AIMCO to lose its status as a REIT
Preferred OP Units acquired Preferred OP are void ab initio.
Units, subject to certain exceptions, such
holder of Preferred OP Units may not If any transfer of Class I Preferred Stock
transfer all or any portion of its Preferred occurs which, if effective, would result in
OP Units to any transferee without the any person beneficially or constructively
consent of the general partner, which owning Class I Preferred Stock in excess or
consent may be withheld in its sole and in violation of the Class I Preferred
absolute discretion. After the expiration of Ownership Limit, such shares of Class I
one year, such holders of Preferred OP Units Preferred Stock in excess of the Class I
has the right to transfer all or any portion Preferred Ownership Limit will be
of its Preferred OP Units to any person, automatically transferred to a trustee in
subject to the satisfaction of certain his capacity as trustee of a trust for the
conditions specified in the AIMCO Operating exclusive benefit of one or more charitable
Partnership's agreement of limited beneficiaries designated by AIMCO, and the
partnership, including the general partner's prohibited transferee will generally have no
right of first refusal. rights in such shares, except upon sale of
the shares by the trustee. The trustee will
After a one-year holding period, a holder have all voting rights and rights to
may redeem Preferred OP Units and receive in dividends with respect to shares of Class I
exchange therefor, at the AIMCO Operating Preferred Stock held in the trust, which
Partnership's option, (i) subject to the rights will be exercised for the benefit of
terms of any Senior Units, cash in an amount the charitable beneficiaries.
equal to the Liquidation Preference of the
Preferred OP Units tendered for The trustee may sell the Class I Preferred
Stock held
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PREFERRED OP UNITS CLASS I PREFERRED STOCK
<TABLE>
<S> <C>
redemption, (ii) a number of shares of Class in the trust to AIMCO or a person,
A Common Stock of AIMCO that is equal in designated by the trustee, whose ownership
value to the Liquidation Preference of the of the Class I Preferred Stock will not
Preferred OP Units tendered for redemption, violate the Class I Preferred Ownership
or (iii) for Preferred OP Units redeemed Limit. Upon such sale, the interest of the
after a two-year holding period, a number of charitable beneficiaries in the shares sold
shares of Class I Preferred Stock of AIMCO will terminate and the trustee will
that pay an aggregate amount of dividends distribute to the prohibited transferee, the
equivalent to the distributions on the lesser of (i) the price paid by the
Preferred OP Units tendered for redemption; prohibited transferee for the shares or if
provided that such shares are part of a the prohibited transferee did not give value
class or series of preferred stock that is for the shares in connection with the event
then listed on the NYSE or another national causing the shares to be held in the trust,
securities exchange. See "Federal Income Tax the market price of such shares on the day
Consequences -- Disguised Sales." The of the event causing the shares to be held
Preferred OP Units may not be redeemed at in the trust and (ii) the price per share
the option of the AIMCO Operating received by the trustee from the sale or
Partnership. See "Description of Preferred other disposition of the shares held in the
OP Units -- Redemption." trust. Any proceeds in excess of the amount
payable to the prohibited transferee will be
payable to the charitable beneficiaries.
On and after March 1, 2005, AIMCO may, at
its option, redeem shares of Class I
Preferred Stock, in whole or from time to
time in part, at a cash redemption price
equal to 100% of the Class I Liquidation
Preference plus all accumulated, accrued and
unpaid dividends to the date fixed for
redemption. If full cumulative dividends on
all outstanding shares of Class I Preferred
Stock have not been paid or declared and set
apart for payment, no shares of Class I
Preferred Stock may be redeemed unless all
outstanding shares of Class I Preferred
Stock are simultaneously redeemed and
neither AIMCO nor any of its affiliates may
purchase or acquire shares of Class I
Preferred Stock otherwise than pursuant to a
purchase or exchange offer made on the same
terms to all holders of Class I Preferred
Stock. The redemption price for the Class I
Preferred Stock (other than any portion
thereof consisting of accumulated, accrued
and unpaid dividends) will be payable solely
with the proceeds from the sale by AIMCO of
capital stock of AIMCO or the sale by the
AIMCO Operating Partnership of partnership
interests in the AIMCO Operating Partnership
(whether or not such sale occurs
concurrently with such redemption).
</TABLE>
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CONFLICTS OF INTEREST
CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER
The general partner of your partnership became a majority-owned subsidiary
of AIMCO on October 1, 1998, when AIMCO merged with Insignia. Your general
partner became a wholly owned subsidiary on February 26, 1999 of AIMCO when IPT
merged with AIMCO. Accordingly, the general partner of your partnership has
substantial conflicts of interest with respect to the offer. The general partner
of your partnership has a fiduciary obligation to obtain a fair offer price for
you, even as a subsidiary of AIMCO. It also has a duty to remove the property
manager for your partnership's property, under certain circumstances, even
though the property manager is also an affiliate of AIMCO. The conflicts of
interest include the fact that a decision to remove, for any reason, the general
partner of your partnership from its current position as a general partner of
your partnership would result in a decrease or elimination of the substantial
management fees paid to an affiliate of the general partner of your partnership
for managing your partnership property. Additionally, we desire to purchase
units at a low price and you desire to sell units at a high price. The general
partner of your partnership makes no recommendation as to whether you should
tender or refrain from tendering your units. Such conflicts of interest in
connection with the offer and the operation of AIMCO differ from those conflicts
of interest that currently exist for your partnership. See "Risk
Factors -- Risks to Unitholders Who Tender Their Units in the Offer -- Conflicts
of Interest with Respect to the Offer."
CONFLICTS OF INTEREST THAT CURRENTLY EXIST FOR YOUR PARTNERSHIP
We own both the general partner of your partnership and the manager of your
partnership's property. The general partner does not receive an annual
management fee but may receive reimbursements for expenses incurred in its
capacity as general partner. The general partner of your partnership received
total fees and reimbursements of $3,000 in 1996, $2,500 in 1997 and $24,155 in
1998. The property manager received management fees of $110,013 in 1996, $96,770
in 1997 and $118,622 in 1998. The AIMCO Operating Partnership has no current
intention of changing the fee structure for the general partner or for the
manager of your partnership's property.
COMPETITION AMONG PROPERTIES
Because AIMCO and your partnership both invest in apartment properties,
these properties may compete with one another for tenants. AIMCO's policy is to
limit its management to properties which do not compete with one another.
Furthermore, you should bear in mind that AIMCO anticipates acquiring properties
in general market areas where your partnership property is located. It is
believed that this concentration of properties in a general market area will
facilitate overall operations through collective advertising efforts and other
operational efficiencies. In managing AIMCO's properties, the AIMCO Operating
Partnership will attempt to reduce such conflicts between competing properties
by referring prospective customers to the property considered to be most
conveniently located for the customer's needs.
FEATURES DISCOURAGING POTENTIAL TAKEOVERS
Certain provisions of AIMCO's governing documents, as well as statutory
provisions under certain state laws, could be used by AIMCO's management to
delay, discourage or thwart efforts of third parties to acquire control of, or a
significant equity interest in, AIMCO and the AIMCO Operating Partnership. See
"Comparison of Your Partnership and the AIMCO Operating Partnership." AIMCO's
Charter limits ownership of its common stock by any single shareholder to 8.7%
of the outstanding shares (or 15% in the case of certain pension trusts,
registered investment companies and AIMCO's Chairman, Terry Considine). The 8.7%
ownership limit may have the effect of precluding acquisition of control of us
by a third party without the consent of our Board of Directors. Under AIMCO's
Charter, the Board of Directors has the authority to classify and reclassify any
of its unissued shares of capital stock into shares of preferred stock with such
preferences, rights, powers and restrictions as the Board of Directors may
determine. The authorization and issuance of preferred stock could have the
effect of delaying or preventing someone from taking control of us, even if a
change in control were in our shareholders' best interests. As a Maryland
corporation, AIMCO is
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<PAGE> 101
subject to various Maryland laws which may have the effect of discouraging
offers to acquire us and of increasing the difficulty of consummating any such
offers, even if our acquisition would be in our shareholders' best interests.
The Maryland General Corporation Law restricts mergers and other business
combination transactions between us and any person who acquires beneficial
ownership of shares of our stock representing 10% or more of the voting power
without our Board of Directors' prior approval. Any such business combination
transaction could not be completed until five years after the person acquired
such voting power, and only with the approval of shareholders representing 80%
of all votes entitled to be cast and 66% of the votes entitled to be cast,
excluding the interested shareholder. Maryland law also provides that a person
who acquires shares of our stock that represent 20% or more of the voting power
in electing directors will have no voting rights unless approved by a vote of
two-thirds of the shares eligible to vote.
FUTURE EXCHANGE OFFERS
If the results of operations were to improve for your partnership under
AIMCO's management, AIMCO might be required to pay a higher price for any future
exchange offers it may make for units of your partnership. Although we have no
current plans to conduct future exchange offers for your units, our plans may
change based on future circumstances. However, we will not acquire any
additional units for a period of at least one year after expiration of the
offer. Any such future offers that we might make could be for consideration that
is more or less than the consideration we are currently offering.
SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES
The AIMCO Operating Partnership expects that approximately $1,250 will be
required to purchase all of the units sought in the offer, if such units are
tendered for cash excluding expenses as itemized below. The AIMCO Operating
Partnership will obtain all such funds from cash from operations, equity
issuances and short term borrowings. The AIMCO Operating Partnership will pay
all of the costs of the offer and not your partnership.
Below is an itemized statement of the estimated expenses incurred and to be
incurred in the offer by the AIMCO Operating Partnership:
<TABLE>
<S> <C>
Information Agent Fees...................................... $ 5,000
Accountant's Fees........................................... $ 5,000
Legal Fees.................................................. $10,000
Printing Fees............................................... $10,000
Stanger's Fees.............................................. $ 9,000
Other....................................................... $11,000
-------
Total....................................................... $50,000
</TABLE>
If funds are borrowed to consummate the offer, we intend to use our amended
and restated credit agreement with Bank of America National Trust and Savings
Association ("Bank of America") and BankBoston, N.A. The credit agreement
provides a revolving credit facility of up to $100 million, including a swing
line of up to $30 million. The AIMCO Operating Partnership is the borrower under
the credit facility, and all obligations thereunder are guaranteed by AIMCO and
certain of its subsidiaries. The annual interest rate under the credit facility
is based on either LIBOR or Bank of America's reference rate, at the election of
the company, plus an applicable margin. The AIMCO Operating Partnership elects
which interest rate will be applicable to particular borrowings under the credit
facility. The margin ranges between 2.25% and 2.75% in the case of LIBOR-based
loans and between 0.75% and 1.25% in the case of base rate loans, depending upon
a ratio of the AIMCO Operating Partnership's consolidated unsecured indebtedness
to the value of certain unencumbered assets. The credit facility matures on
September 30, 1999 unless extended, at the discretion of the lenders. The credit
facility provides for the conversion of the revolving facility into a three year
term loan. The availability of funds to the AIMCO Operating Partnership under
the credit facility is subject to certain borrowing base restrictions and other
customary restrictions, including compliance with financial and other covenants
thereunder. The financial covenants require the AIMCO Operating Partnership
S-96
<PAGE> 102
to maintain a ratio of debt to gross asset value of no more than 0.55 to 1.0, an
interest coverage ratio of 2.25 to 1.0 and a fixed charge coverage ratio of at
least 1.6 to 1.0 through December 31, 1998, 1.7 to 1.0 from January 1, 1999
through June 30, 1999, and 1.8 to 1.0 thereafter. In addition, the credit
facility limits the AIMCO Operating Partnership from distributing more than 80%
of its Funds From Operations (as defined) to holders of OP Units, imposes
minimum net worth requirements and provides other financial covenants related to
certain unencumbered assets.
We may obtain funds pursuant to a credit agreement entered into by our
subsidiary, Insignia Properties, L.P. ("IPLP"), with Lehman Commercial Paper,
Inc., as syndication agent, First Union National Bank, as administrative agent
and the lenders from time to time parties thereto. Pursuant to the credit
agreement, the lenders have made available to IPLP a revolving credit facility
of up to $50,000,000 at any one time outstanding which matures in a single
installment on December 30, 2000. Loans may be borrowed by IPLP at a rate based
upon the adjusted LIBOR Rate (as defined in the credit agreement) or the Base
Rate (as defined in the credit agreement). IPLP is obligated to pay a commitment
fee at a rate of 0.25% per annum on the undrawn portion of the line of credit.
The credit agreement includes customary covenants and restrictions on IPLP's
ability to, among other things, incur debt or contingent obligations, grant
liens, sell assets, make distributions or make investments. In addition, the
credit agreement contains certain financial covenants. The AIMCO Operating
Partnership intends to repay any funds borrowed out of working capital in the
ordinary course of business.
LEGAL MATTERS
Skadden, Arps, Slate, Meagher & Flom LLP has delivered an opinion to the
effect that the Common OP Units and the Preferred OP Units offered by this
Prospectus Supplement will be validly issued, fully paid and nonassessable.
Skadden, Arps, Slate, Meagher & Flom LLP has delivered an opinion with regard to
the material Federal income tax consequences of the offer. Skadden, Arps, Slate,
Meagher & Flom LLP has previously performed certain legal services on behalf of
AIMCO and the AIMCO Operating Partnership and their affiliates.
The two opinions of Skadden, Arps, Slate, Meagher & Flom LLP are not
attached to this Prospectus Supplement. However, upon receipt of a written
request by a unitholder or representative so designated in writing, a copy of
such opinions will be sent by the Information Agent.
EXPERTS
The financial statements of Ravensworth Associates Limited Partnership at
December 31, 1997, 1996 and 1995 and for the years then ended, appearing in this
Prospectus Supplement have been audited by Barry S. Fishman & Assoc.,
independent auditors, as set forth in their reports thereon appearing elsewhere
herein, and are included in reliance upon such reports given upon the authority
of such firm as experts in accounting and auditing.
S-97
<PAGE> 103
RAVENSWORTH ASSOCIATES LIMITED PARTNERSHIP
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Accountants' Compilation Report............................. F-2
Balance Sheet as of September 30, 1998 and 1997
(Unaudited)............................................... F-3
Statement of Operations for the nine months ended September
30, 1998 and 1997 (Unaudited)............................. F-4
Statements of Changes in Partners' Capital Deficit for the
nine months ended September 30, 1998 and 1997
(Unaudited)............................................... F-5
Statements of Cash Flows for the nine months ended September
30, 1998 and 1997
(Unaudited)............................................... F-6
Independent Auditors' Report................................ F-8
Balance Sheets as of December 31, 1997 and 1996............. F-8
Statements of Operations for the years ended December 31,
1997 and 1996............................................. F-10
Statements of Changes in Partners' Capital Deficit for the
years ended December 31, 1997 and 1996.................... F-11
Statements of Cash Flows for the years ended December 31,
1997 and 1996............................................. F-12
Notes to the Financial Statements........................... F-13
</TABLE>
F-1
<PAGE> 104
ACCOUNTANTS' COMPILATION REPORT
To the Partners of
Ravensworth Associates Limited Partnership
We have compiled the accompanying balance sheets of Ravensworth Associates
Limited Partnership as of September 30, 1998 and 1997, and the related
statements of operations, changes in partners' capital deficit and cash flows
for the nine months then ended, in accordance with Statements on Standards for
Accounting and Review Services issued by the American Institute of Certified
Public Accountants.
A compilation is limited to presenting in the form of financial statements
information that is the representation of management. We have not audited or
reviewed the accompanying financial statements and, accordingly, do not express
an opinion or any other form of assurance on them.
Management has elected to omit substantially all of the disclosures
required by generally accepted accounting principles. If the omitted disclosures
were included in the financial statements, they might influence the user's
conclusions about the Partnership's financial position, results of operations,
and cash flows. Accordingly, these financial statements are not designed for
those who are not informed about such matters.
/s/ BARRY FISHMAN & ASSOCIATES,
CHARTERED
January 20, 1999
Bethesda, Maryland
F-2
<PAGE> 105
RAVENSWORTH ASSOCIATES LIMITED PARTNERSHIP
BALANCE SHEETS
SEPTEMBER 30, 1998 AND 1997
ASSETS
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Real estate, at cost
Land...................................................... $ 1,000,000 $ 1,000,000
Building, improvements and equipment, less accumulated
depreciation of $7,504,715 and $7,019,244,
respectively........................................... 5,724,975 5,958,126
Cash........................................................ 485,939 536,753
Tenant accounts receivable.................................. 2,196 899
Mortgage escrow deposits.................................... 52,612 54,264
Prepaid expenses............................................ 27,949 4,930
Deferred costs, net of accumulated amortization of $99,284
and $47,483, respectively................................. 263,322 317,474
----------- -----------
$ 7,556,993 $ 7,872,446
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL DEFICIT
Liabilities
Notes payable............................................. $12,832,583 $12,964,814
Accounts payable and accrued expenses..................... 163,322 61,153
Accrued interest expense.................................. 88,636 82,085
Prepaid rent.............................................. 15,013 2,945
Tenant security deposits.................................... 32,401 29,499
----------- -----------
Total liabilities................................. 13,131,955 13,140,496
Partners' capital deficit................................... (5,574,962) (5,268,050)
----------- -----------
$ 7,556,993 $ 7,872,446
=========== ===========
</TABLE>
See accountants' compilation report.
F-3
<PAGE> 106
RAVENSWORTH ASSOCIATES LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
REVENUE
Rental.................................................... $1,582,590 $1,617,390
Interest.................................................. 12,618 14,915
Other income.............................................. 142,307 109,848
---------- ----------
Total revenue..................................... 1,737,515 1,742,153
---------- ----------
OPERATING EXPENSES
Depreciation.............................................. 364,100 364,112
Amortization.............................................. 38,850 38,850
Administrative and office expenses........................ 39,883 49,823
Insurance................................................. 26,231 23,568
Professional fees......................................... 9,689 10,805
Management fees........................................... 90,362 87,292
Marketing................................................. 53,780 34,342
Payroll costs............................................. 159,006 141,180
Taxes -- real estate...................................... 126,498 124,097
Other taxes and licenses.................................. 7,148 5,829
Repairs and maintenance................................... 119,438 70,170
Utilities................................................. 191,061 183,912
---------- ----------
Total operating expenses.......................... 1,226,046 1,133,980
OTHER EXPENSES
Interest.................................................. 752,234 737,867
---------- ----------
Total expenses.................................... 1,978,280 1,871,847
---------- ----------
Net loss.................................................... $ (240,765) $ (129,694)
========== ==========
</TABLE>
See accountants' compilation report.
F-4
<PAGE> 107
RAVENSWORTH ASSOCIATES LIMITED PARTNERSHIP
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL DEFICIT
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Partners' capital deficit, January 1,....................... $(5,334,197) $(5,138,356)
Net loss for the nine months ended September 30,............ (240,765) (129,694)
----------- -----------
Partners' capital deficit, September 30,.................... $(5,574,962) $(5,268,050)
=========== ===========
</TABLE>
See accountants' compilation report.
F-5
<PAGE> 108
RAVENSWORTH ASSOCIATES LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Cash flows from operating activities
Net loss.................................................. $(240,765) $(129,694)
Adjustments to reconcile net loss to net cash provided by
operating activities
Depreciation........................................... 364,100 364,112
Amortization........................................... 38,850 38,850
(Increase) decrease in receivables..................... (909) 1,661
(Increase) in mortgage escrow.......................... (39,825) (40,561)
(Increase) in other assets............................. (25,634) (4,430)
Increase in accounts payable, accrued expenses and
prepaid rent.......................................... 117,174 8,673
Decrease (increase) in tenants' security deposits,
net................................................... 3,500 (1,097)
--------- ---------
Net cash provided by operating activities......... 216,491 237,514
--------- ---------
Cash flows from investing activities
Improvements to property.................................. (237,374) (184,435)
Increase in deferred costs................................ -- (2,353)
--------- ---------
Net cash (used in) investing activities........... (237,374) (186,788)
--------- ---------
Cash flows from financing activities
Repayment of notes payable................................ (100,200) (92,178)
--------- ---------
Net cash (used in) financing activities........... (100,200) (92,178)
--------- ---------
Net (decrease) in cash and cash equivalents................. (121,083) (41,452)
Cash and cash equivalents, January 1, ...................... 607,022 578,205
--------- ---------
Cash and cash equivalents, September 30, ................... $ 485,939 $ 536,753
========= =========
Supplemental cash flow information:
Interest paid............................................. $ 744,816 $ 734,982
========= =========
</TABLE>
See accountants' compilation report.
F-6
<PAGE> 109
RAVENSWORTH ASSOCIATES LIMITED PARTNERSHIP
FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS' REPORT
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
F-7
<PAGE> 110
INDEPENDENT AUDITORS' REPORT
To the Partners of
Ravensworth Associates Limited Partnership
We have audited the accompanying balance sheets of Ravensworth Associates
Limited Partnership as of December 31, 1997 and 1996, and the related statements
of operations, changes in partners' capital deficit and cash flows for the years
then ended. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 financial position of Ravensworth Associates
Limited Partnership as of December 31, 1997 and 1996 and the results of its
operations and its cash flows for the years then ended, in conformity with
generally accepted accounting principles.
/s/ BARRY S. FISHMAN & ASSOCIATES,
CHARTERED
December 21, 1998
Bethesda, Maryland
F-8
<PAGE> 111
RAVENSWORTH ASSOCIATES LIMITED PARTNERSHIP
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
ASSETS
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Real estate, at cost
Land...................................................... $ 1,000,000 $ 1,000,000
Building, improvements and equipment, less accumulated
depreciation of $7,140,615 and $6,655,132,
respectively........................................... 5,851,703 6,137,802
Cash........................................................ 578,121 547,609
Tenant accounts receivable.................................. 1,287 2,560
Mortgage escrow deposits.................................... 12,787 13,704
Other receivables........................................... 2,315 500
Tenant security deposits -- funded.......................... 28,901 30,596
Deferred costs, net of accumulated amortization of $60,434
and $8,633, respectively.................................. 302,170 353,971
----------- -----------
$ 7,777,284 $ 8,086,742
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL DEFICIT
Liabilities
Notes payable............................................. $12,932,783 $13,056,992
Accounts payable.......................................... 9,382 18,132
Accrued interest expense.................................. 81,218 79,200
Other accrued expenses.................................... 56,489 38,789
Prepaid rent.............................................. 2,708 1,389
Tenant security deposits.................................. 28,901 30,596
----------- -----------
Total liabilities................................. 13,111,481 13,225,098
Partners' capital deficit......................... (5,334,197) (5,138,356)
----------- -----------
$ 7,777,284 $ 8,086,742
=========== ===========
</TABLE>
See accompanying notes.
F-9
<PAGE> 112
RAVENSWORTH ASSOCIATES LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 30, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
REVENUE
Rental.................................................... $2,168,322 $2,064,880
Interest.................................................. 19,179 36,603
Other income.............................................. 143,205 158,012
---------- ----------
Total revenue..................................... 2,330,706 2,259,495
---------- ----------
OPERATING EXPENSES
Depreciation.............................................. 485,483 476,491
Amortization.............................................. 51,801 70,633
Administrative and office expenses........................ 73,441 75,718
Insurance................................................. 34,551 33,206
Professional fees......................................... 11,498 10,275
Management fees........................................... 119,689 110,013
Marketing................................................. 45,675 29,181
Payroll costs............................................. 187,976 171,195
Taxes -- real estate...................................... 166,255 164,512
Other taxes and licenses.................................. 5,728 6,628
Repairs and maintenance................................... 97,259 89,482
Utilities................................................. 265,677 256,423
---------- ----------
Total operating expenses.......................... 1,545,033 1,493,757
---------- ----------
OTHER EXPENSES
Interest.................................................. 981,514 1,225,316
---------- ----------
Total expenses.................................... 2,526,547 2,719,073
---------- ----------
Net loss.................................................... $ (195,841) $ (459,578)
========== ==========
</TABLE>
See accompanying notes.
F-10
<PAGE> 113
RAVENSWORTH ASSOCIATES LIMITED PARTNERSHIP
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
<S> <C>
Partners' capital deficit, December 31, 1995................ $(4,678,778)
Net loss for the year ended December 31, 1996............... (459,578)
-----------
Partners' capital deficit, December 31, 1996................ (5,138,356)
Net loss for the year ended December 31, 1997............... (195,841)
-----------
Partners' capital deficit, December 31, 1997................ $(5,334,197)
===========
</TABLE>
See accompanying notes.
F-11
<PAGE> 114
RAVENSWORTH ASSOCIATES LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
--------- ------------
<S> <C> <C>
Cash flows from operating activities
Net loss.................................................. $(195,841) $ (459,578)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities
Depreciation........................................... 485,483 476,491
Amortization........................................... 51,801 70,634
(Increase) in receivables.............................. (542) (5,694)
Decrease in mortgage escrow............................ 917 --
Increase (decrease) in accounts payable, accrued
expenses and prepaid rent............................. 12,287 (1,872,700)
Decrease in tenants' security deposits, net............ -- (51,756)
--------- ------------
Net cash provided by (used in) operating
activities...................................... 354,105 (1,842,603)
--------- ------------
Cash flows from investing activities
Improvements to property.................................. (199,384) (83,362)
Increase in deferred costs................................ -- (362,605)
--------- ------------
Net cash (used in) investing activities........... (199,384) (445,967)
--------- ------------
Cash flows from financing activities
Borrowing of notes payable................................ -- 12,966,882
Repayment of notes payable................................ (124,209) (9,890)
Payoff of notes payable................................... -- (11,000,000)
--------- ------------
Net cash provided by (used in) financing
activities...................................... (124,209) 1,956,992
--------- ------------
Net increase (decrease) in cash and cash equivalents........ 30,512 (331,578)
Cash and cash equivalents, beginning........................ 547,609 879,187
--------- ------------
Cash and cash equivalents, end.............................. $ 578,121 $ 547,609
========= ============
Supplemental cash flow information:
Interest paid............................................. $ 979,496 $ 3,112,998
========= ============
</TABLE>
See accompanying notes.
F-12
<PAGE> 115
RAVENSWORTH ASSOCIATES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
1. ORGANIZATION
Ravensworth Associates Limited Partnership (the "Partnership"), a
Massachusetts limited partnership, was organized on July 5, 1983 to acquire, own
and operate a nine-story residential apartment complex known as Ravensworth
Towers Apartments (the "Property"), located in Annandale, Virginia. The Property
consists of approximately six acres of land, 219 apartment units, 350 outdoor
parking spaces, an outdoor swimming pool and other recreational facilities.
Stephen A. Goldberg ("Goldberg") and Winthrop Northeast Properties, Inc.
("Winthrop Northeast") are the General Partners. Joseph R. Schuble is the Class
B Limited Partner and Linnaeus-Phoenix Associates Limited Partnership
("Linnaeus") is the Class C Limited Partner. The Partnership received $400 of
capital contributions from the General Partners and the Class B and C Limited
Partners. Investor Limited Partners purchased 50 Units of Limited Partnership
Interest at $72,960 per Unit.
Pursuant to approval of a Recapitalization Proposal by a majority of Class
A Limited Partners, Class D Limited Partners were admitted into the Partnership
on November 30, 1987. The capital contributions of the Class D Limited Partners
totaled $750,000 (of which $705,000 was contributed by Winthrop Northeast) and
is being held in a working capital account. The terms of the Class D Units
include a special allocation of the first $750,000 of tax losses, a 40% interest
in profits and losses thereafter and a 40% interest in cash flow and sale or
refinancing proceeds.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting
The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles.
Depreciation
Depreciation is calculated generally by the straight line method for real
property, and accelerated methods for equipment over the estimated useful lives
of the related assets.
Amortization
Loan costs are being amortized on a straight-line basis over the term of
the loan.
Income Taxes
No provision for income taxes is reflected in the accompanying financial
statements of the Partnership. Partners are required to report on their
individual income tax return their allocable share of income, gains, losses,
deductions and credits of the Partnership.
The Partnership's income tax returns are subject to examination by Federal
and state taxing authorities. Because many types of transactions are subject to
varying interpretations under Federal and state income tax laws and regulations,
an examination of the Partnership's income tax returns may lead to adjustments
to the amounts reported in the accompanying financial statements.
The accompanying financial statements are prepared on a basis of accounting
which is different than the accounting basis used in the preparation of
Partnership income tax returns. As a result, financial statement net loss from
operations is less than the net loss reported on Partnership income tax returns.
Also, financial statement accumulated depreciation is less than income tax
return accumulated depreciation. The differences are due primarily to the
calculation of depreciation expense using certain methods and asset lives for
income
F-13
<PAGE> 116
RAVENSWORTH ASSOCIATES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
tax purposes which are methods and lives that are not in conformity with
generally accepted accounting principles. The differences are as follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Financial statement net loss............................... $ (195,841) $ (459,578)
Depreciation adjustment.................................... (152,714) (152,714)
----------- -----------
Income tax return net loss................................. $ (348,555) $ (612,292)
=========== ===========
Financial statement accumulated depreciation............... $ 7,140,615 $ 6,655,132
Cumulative adjustments..................................... 5,097,249 4,944,535
----------- -----------
Income tax return accumulated depreciation................. $12,237,864 $11,599,667
=========== ===========
</TABLE>
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Accordingly, actual results could differ from those estimates.
Cash and Cash Equivalents
The Partnership considers all highly liquid instruments with an initial
maturity of six months or less to be cash equivalents for purposes of the
statement of cash flows.
Accounts Receivable
Management considers all accounts receivable to be collectible.
3. CONCENTRATION OF RISK
During the year, the Partnership, at times, maintained cash balances in
excess of the federally insured maximum of $100,000. Management does not
consider the risk to be significant.
4. BUILDING, IMPROVEMENTS AND EQUIPMENT
The following schedule summarizes building, improvements and equipment at
December 31, 1997 and 1996.
<TABLE>
<CAPTION>
RECOVERY PERIOD 1997 1996
- --------------- ----------- -----------
<S> <C> <C>
Building and improvements................................. $11,850,662 $11,735,337
Equipment................................................. 1,141,656 1,057,597
----------- -----------
12,992,318 12,792,934
Accumulated depreciation.................................. (7,140,615) (6,655,132)
----------- -----------
$ 5,851,703 $ 6,137,802
=========== ===========
</TABLE>
5. NOTES PAYABLE
Mortgage Notes
In October 1996, the Partnership refinanced its existing debt. The
Partnership paid off by means of new financing an $11,000,000 purchase money
mortgage note along with accrued interest of $1,966,882. The new
F-14
<PAGE> 117
RAVENSWORTH ASSOCIATES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
financing arrangement consists of a $10,000,000 first mortgage note payable and
a $2,966,882 second mortgage note payable. The Partnership incurred loan costs
of $362,605.
The first mortgage note payable to John Hancock Variable Life Insurance
Company bears interest at 8.375% with monthly installments of interest and
principal in the amount of $79,682. The loan matures on November 1, 2003. The
principal balances at December 31, 1997 and 1996 amounted to $9,865,901 and
$9,990,110 respectively.
Principal payments for the next five years are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
- ------------
<S> <C>
1998.................................................... $135,020
1999.................................................... 146,773
2000.................................................... 159,549
2001.................................................... 173,435
2002.................................................... 188,531
</TABLE>
The second mortgage note payable to Goldberg bears interest at 5% through
July 31, 1998 and at 8% until maturity on November 1, 2003.
Note Payable to Partner
Goldberg has advanced $100,000 to the Partnership. The loan is non-interest
bearing and is unsecured. The loan is payable prior to any distributions to any
partners of net cash flow, sale or financing proceeds or proceeds upon
liquidation of the Partnership.
6. RELATED PARTY TRANSACTIONS
Winthrop Northeast, Winthrop Financial Co., Inc. ("Winthrop Financial") and
Winthrop Securities Co., Inc. ("Winthrop Securities"), the Selling Agent, are
wholly-owned subsidiaries of First Winthrop Corporation ("First Winthrop") which
in turn is a wholly-owned subsidiary of Winthrop Financial Associates, A Limited
Partnership. Linnaeus, the Class C Limited Partner, is a limited partnership
whose general partners are directors of First Winthrop.
Winthrop Northeast was paid asset management fees of $2,500 and $3,000 for
the years ended December 31, 1997 and 1996 respectively.
Winthrop Management, an affiliate of Winthrop Northeast, was paid a
management fee at 5% of the gross receipts for the management of the Property.
Fees under this agreement totaled $96,770 and $110,013 for the years ended
December 31, 1997 and 1996 respectively.
Effective October 28, 1997, the Partnership engaged Insignia Residential
Group, L.P. to manage the property at the rate of 5% of gross revenues. Fees
under this agreement amounted to $19,919. Insignia Residential Group, L.P. is a
related party through an affiliation with Winthrop Northeast.
F-15
<PAGE> 118
PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P.
AS OF SEPTEMBER 30, 1998 AND FOR THE YEAR
ENDED DECEMBER 31, 1997 AND THE
NINE MONTHS ENDED SEPTEMBER 30, 1998
INTRODUCTION
On October 1, 1998, Apartment Investment and Management Company ("AIMCO")
completed its merger with Insignia Financial Group ("IFG") ("the IFG Merger").
In the IFG Merger, IFG's common stock was converted into 8,423,751 shares of
Class E Cumulative Convertible Preferred Stock of AIMCO ("Class E Preferred
Stock") whose issue date market value approximately equaled $292 million. In
addition to receiving the same dividends as holders of AIMCO Common Stock,
holders of Class E Preferred Stock will be entitled to a special dividend of
approximately $50 million in the aggregate. When that special dividend is paid
in full, the Class E Preferred Stock will automatically convert into AIMCO
Common Stock on a one-for-one basis, subject to antidilution adjustments, if
any. In addition, AIMCO assumed approximately $411 million in indebtedness and
other liabilities of IFG and its subsidiaries and subsidiaries of AIMCO, assumed
approximately $149.5 million of convertible securities and purchased
approximately $5 million of IFG stock prior to the Merger. AIMCO and Insignia
Properties Trust ("IPT") have completed a merger in which IPT has merged into
AIMCO or a subsidiary of AIMCO (the "IPT Merger"). In the IPT Merger, shares of
IPT common stock not held by AIMCO were converted, into 4,826,745 shares of
AIMCO Class A Common Stock whose market value approximately equaled $152
million. AIMCO assumed approximately $68 million in indebtedness. In connection
with the IFG Merger and the IPT Merger, AIMCO incurred approximately $55 million
in transaction costs for a combined transactional value of approximately $1,183
million. AIMCO contributed substantially all the assets and liabilities of
Insignia acquired in the Insignia Merger to AIMCO Properties, L.P. (together
with its subsidiaries and other controlled entities, the "Partnership") (and
together with entities in which that Partnership has a controlling financial
interest, the "Company") in exchange for 8,423,751 Class E Preferred Units. The
Class E Preferred Units have terms substantially the same as the Class E
Preferred Stock. In addition, AIMCO contributed substantially all the assets and
liabilities of IPT acquired in the IPT Merger to the Partnership in exchange for
4,826,745 limited partnership units in the Partnership ("OP Units"). In
connection with the IFG Merger, the Partnership assumed property management of
approximately 192,000 multifamily units which consist of general and limited
partnership investments in 115,000 units and third party management of 77,000
units. Insignia Properties Trust ("IPT"), which prior to the IFG Merger was a
subsidiary of IFG, owns a 32% weighted average general and limited partnership
interest in approximately 51,000 units.
Immediately following the IFG Merger, in order to satisfy certain
requirements of the Internal Revenue Code of 1986 (the "Code") applicable to
AIMCO's status as a REIT, AIMCO engaged in a reorganization (the "IFG
Reorganization") of the assets and operations of IFG whereby IFG's operations
are being conducted through corporations (the "Unconsolidated Subsidiaries") in
which the Partnership holds non-voting preferred stock that represents a 95%
economic interest, and certain officers and/or directors of AIMCO hold, directly
or indirectly, all of the voting common stock, representing a 5% economic
interest. As a result of the controlling ownership interest in the
Unconsolidated Subsidiaries held by others, the Partnership accounts for its
interest in the Unconsolidated Subsidiaries on the equity method.
In May and September of 1997, AIMCO directly or indirectly through a
subsidiary, acquired (the "NHP Stock Purchase") an aggregate of 6,930,122 shares
of common stock ("NHP Common Stock") of NHP. On December 8, 1997, AIMCO acquired
the remaining shares of NHP Common Stock in a merger transaction accounted for
as a purchase (the "NHP Merger"). As a result of the NHP Merger, AIMCO issued
6,759,148 shares of AIMCO Common Stock, valued at $180.8 million, and paid $86.5
million in cash. The total cost of the purchase of NHP was $349.5 million.
Substantially all assets and liabilities of NHP were contributed by AIMCO to the
Partnership.
In June 1997, the Company purchased a group of companies (the "NHP Real
Estate Companies") affiliated with NHP that hold general and limited partnership
interests in partnerships (the "NHP Partnerships") that own 534 conventional and
affordable multifamily apartment properties (the "NHP
P-1
<PAGE> 119
Properties") containing 87,659 units, a captive insurance subsidiary and certain
related assets (the "NHP Real Estate Acquisition"). The Company paid aggregate
consideration of $54.8 million in cash and warrants that entitle the holders to
purchase 399,999 shares of AIMCO Common Stock at an exercise price of $36.00 per
share. The Company engaged in a reorganization (the "NHP Real Estate
Reorganization") of its interests in the NHP Real Estate Companies, which
resulted in certain of the assets of the NHP Real Estate Companies being owned
by a limited partnership (the "Unconsolidated Partnership") in which the
Partnership holds 99% limited partner interest and certain directors and
officers of AIMCO directly or indirectly, hold a 1% general partner interest.
Immediately following the NHP Merger, in order to satisfy certain
requirements of the Code applicable to AIMCO's status as a REIT, AIMCO engaged
in a reorganization (the "NHP Reorganization") of the assets and operations of
NHP that resulted in the Master Property Management Agreement being terminated
and NHP's operations being conducted through Unconsolidated Subsidiaries in
which the AIMCO Operating Partnership holds non-voting preferred stock that
represents a 95% economic interest, and certain officers and/or directors of
AIMCO hold, directly or indirectly, all of the voting common stock, representing
a 5% economic interest. As a result of the controlling ownership interest in the
Unconsolidated Subsidiaries held by others, the Partnership accounts for its
interest in the Unconsolidated Subsidiaries on the equity method.
On May 8, 1998, AIMCO completed a merger with Ambassador Apartments, Inc.
("Ambassador"), pursuant to which Ambassador was merged into AIMCO (the
"Ambassador Merger"). Each outstanding share of stock ("Ambassador Common
Stock") of Ambassador, other than those shares held by AIMCO or Ambassador, were
converted into 0.553 (the "Conversion Ratio") shares of AIMCO Common Stock. Any
outstanding options to purchase Ambassador Common Stock were converted, at the
election of the option holder, into cash or options to purchase AIMCO Common
Stock at such options' then current exercise price divided by the Conversion
Ratio. In accordance with the Agreement and Plan of Merger, dated December 23,
1997 and supplemented by letter dated as of March 11, 1998 (the "Ambassador
Merger Agreement"), the outstanding shares of Class A Senior Cumulative
Convertible Preferred Stock of Ambassador, (the "Ambassador Preferred Stock")
were redeemed and converted into Ambassador Common Stock prior to the Ambassador
Merger. Following the consummation of the Ambassador Merger, a subsidiary of the
Partnership was merged with and into the Ambassador Operating Partnership (the
"Ambassador OP Merger"). Each outstanding unit of limited partnership interest
in the Ambassador Operating Partnership was converted into the right to receive
0.553 OP Units, and as a result, the Ambassador Operating Partnership became a
99.9% owned subsidiary partnership of the Partnership.
Also during 1997, the Partnership (i) (a) acquired 44 properties for
aggregate purchase consideration of $467.4 million, of which $56 million was
paid in the form of 1.9 million OP Units (b) paid $34.2 million in cash and
issued OP Units valued at $7.3 million in connection with the acquisition of
partnership interests through tender offers in certain partnerships ((a) and (b)
together are the "1997 Property Acquisitions") and (c) paid $19.9 million to
acquire 886,600 shares of Ambassador Common Stock (together with the 1997
Property Acquisitions, the "1997 Acquisitions"); (ii) sold (a) approximately
16,367,000 shares of AIMCO Common Stock for aggregate net proceeds of $513.4
million; (b) 750,000 shares of AIMCO Class B Cumulative Convertible Preferred
Stock for net proceeds of $75 million; and (c) 2,400,000 shares of AIMCO Class C
9% Cumulative Preferred Stock for net proceeds of $58.1 million; of which all
proceeds were contributed by AIMCO to the Partnership in exchange for 16,367,000
OP Units, 750,000 Class B Preferred Units, and 2,400,000 Class C Preferred Units
(collectively, the "1997 Stock Offerings"); and (iii) sold five real estate
properties (the "1997 Dispositions").
Also during 1998, AIMCO (i) (a) sold 4,200,000 shares of its Class D
Cumulative Preferred Stock for net proceeds of $101.5 million (the "Class D
Preferred Stock Offering"); (b) sold 4,050,000 shares of its Class G Cumulative
Preferred Stock for net proceeds of $98.0 million (the "Class G Preferred Stock
Offering"); (c) sold 2,000,000 shares of its Class H Cumulative Preferred Stock
for net proceeds of $48.1 million (the "Class H Preferred Stock Offering"); and
(d) sold 1,000,000 shares of its Class J Cumulative Convertible Preferred Stock
in a private placement for $100.0 million (the "Class J Preferred Stock
Offering"); of which all proceeds were contributed by AIMCO to the Partnership
in exchange for
P-2
<PAGE> 120
4,050,000 Class G Preferred Units, 2,000,000 Class H Preferred Units and
1,000,000 shares of Class J Preferred Units (collectively, the "1998 Stock
Offerings"); (ii) purchased 29 properties for aggregate purchase consideration
of $312.7 million, of which $52.2 million was paid in the form of OP Units (the
"1998 Acquisitions"); (iii) sold two real estate properties (the "1998
Dispositions"); (iv) contracted to purchase two properties for aggregate
purchase consideration of $62.1 million, of which $26.4 million will be paid in
the form of OP units (the "Probable Purchases") and (v) sold 1,400,000 Class B
Preferred Partnership Units of a subsidiary and warrants to purchase 875,000
shares of AIMCO Class A Common Stock for $35.0 million (the "Preferred
Partnership Unit Offering").
PRO FORMA FINANCIAL INFORMATION OF THE PARTNERSHIP (INSIGNIA MERGER)
The following Pro Forma Consolidated Balance Sheet (Insignia Merger) of the
Partnership as of September 30, 1998 has been prepared as if each of the
following transactions had occurred as of September 30, 1998: (i) the purchase
of nine properties for an aggregate purchase price of $62.5 million; (ii) the
Class J Preferred Stock Offering; (iii) the Probable Purchases; (iv) the IFG
Merger; (v) the IPT Merger; (vi) the IFG Reorganization; and (vii) the Preferred
Partnership Unit offering.
The following Pro Forma Consolidated Statement of Operations (Insignia
Merger) and Pro Forma Consolidated Statement of Cash Flows (Insignia Merger) of
the Partnership for the year ended December 31, 1997 has been prepared as if
each of the following transactions had occurred as of January 1, 1997: (i) the
1997 Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions;
(iv) the NHP Real Estate Acquisition; (v) the NHP Real Estate Reorganization;
(vi) the NHP Stock Purchase; (vii) the NHP Merger; (viii) the NHP
Reorganization; (ix) the 1998 Stock Offerings; (x) the 1998 Acquisitions; (xi)
the Probable Purchases; (xii) the 1998 Dispositions; (xiii) the Ambassador
Merger; (xiv) the IFG Merger; (xv) the merger between IPT and Angeles Mortgage
Investment Trust ("AMIT") ("the AMIT Merger"); (xvi) the IPT Merger; (xvii) the
IFG Reorganization; and (xviii) the Preferred Partnership Unit offering.
The following Pro Forma Consolidated Statement of Operations (Insignia
Merger) and Pro Forma Consolidated Statement of Cash Flows (Insignia Merger) of
the Partnership for the nine months ended September 30, 1998 has been prepared
as if each of the following transactions had occurred as of January 1, 1997: (i)
the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the Probable
Purchases; (iv) the 1998 Dispositions; (v) the Ambassador Merger; (vi) the IFG
Merger; (vii) the AMIT Merger; (viii) the IPT Merger; (ix) the IFG
Reorganization; and (x) the Preferred Partnership Unit offering.
The following Pro Forma Financial Information (Insignia Merger) is based,
in part, on the following historical financial statements: (i) the audited
Consolidated Financial Statements of the Partnership for the year ended December
31, 1997; (ii) the unaudited Consolidated Financial Statements of the
Partnership for the nine months ended September 30, 1998; (iii) the audited
Consolidated Financial Statements of Ambassador for the year ended December 31,
1997; (iv) the unaudited Consolidated Financial Statements of Ambassador for the
four months ended April 30, 1998; (v) the audited Consolidated Financial
Statements of IFG for the year ended December 31, 1997; (vi) the audited
Consolidated Financial Statements of AMIT for the year ended December 31, 1997;
(vii) the unaudited Consolidated Financial Statements of IFG for the nine months
ended September 30, 1998; (viii) the unaudited Financial Statements of AMIT for
the period from January 1, 1998 to September 17, 1998; (ix) the unaudited
Consolidated Financial Statements of NHP for the nine months ended September 30,
1997; (x) the unaudited Combined Financial Statements of the NHP Real Estate
Companies for the three months ended March 31, 1997; (xi) the unaudited
Financial Statements of NHP Southwest Partners, L.P. for the three months ended
March 31, 1997; (xii) the unaudited Combined Financial Statements of the NHP New
LP Entities for the three months ended March 31, 1997; (xiii) the unaudited
Combined Financial Statements of the NHP Borrower Entities for the three months
ended March 31, 1997; (xiv) the unaudited Historical Summaries of Gross Income
and Certain Expenses of The Bay Club at Aventura for the three months ended
March 31, 1997; (xv) the unaudited Historical Summary of Gross Income and Direct
Operating Expenses of Morton Towers for the six months ended June 30, 1997;
(xvi) the unaudited Combined Statement of Revenues and Certain Expenses of the
Thirty-Five Acquisition Properties for the six months ended June 30, 1997;
(xvii) the unaudited Statement of Revenues and Certain Expenses of First
Alexandria Associates, a Limited Partnership for the nine months
P-3
<PAGE> 121
ended September 30, 1997; (xviii) the unaudited Statement of Revenues and
Certain Expenses of Country Lakes Associates Two, a Limited Partnership for the
nine months ended September 30, 1997; (xix) the unaudited Statement of Revenues
and Certain Expenses of Point West Limited Partnership, A Limited Partnership
for the nine months ended September 30, 1997; (xx) the unaudited Statement of
Revenues and Certain Expenses for The Oak Park Partnership for the nine months
ended September 30, 1997; (xxi) the audited Combined Historical Summary of Gross
Income and Direct Operating Expenses of the Realty Investment Apartment
Communities I for the year ended December 31, 1997, (xxii) the audited Combined
Historical Summary or Gross Income and Direct Operating Expenses of the Cirque
Apartment Communities for the year ended December 31, 1997; (xxiii) the audited
Combined Historical Summary of Gross Income and Direct Operating Expenses of the
Realty Investment Apartment Communities II for the year ended December 31, 1997;
(xxiv) the audited Historical Summary of Gross Income and Direct Operating
Expenses of the Calhoun Beach Club Apartments for the year ended December 31,
1997; (xxv) the unaudited Combined Historical Summary of Gross Income and Direct
Operating Expenses of the Realty Investment Apartment Communities I for the nine
months ended September 30, 1998; (xxvi) the unaudited Combined Historical
Summary of Gross Income and Direct Operating Expenses of the Cirque Apartment
Communities for the three months ended March 31, 1998; (xxvii) the unaudited
Combined Historical Summary of Gross Income and Direct Operating Expenses of the
Realty Investment Apartment Communities II for the nine months ended September
30, 1998; and (xxviii) the unaudited Historical Summary of Gross Income and
Direct Operating Expenses of Calhoun Beach Club Apartments for the nine months
ended September 30, 1998. The following Pro Forma Financial Information should
be read in conjunction with such financial statements and the notes thereto
incorporated by reference herein.
The unaudited Pro Forma Financial Information (Insignia Merger) has been
prepared using the purchase method of accounting whereby the assets and
liabilities of NHP, the NHP Real Estate Companies, Ambassador, IFG, IPT, the
1997 Acquisitions, the 1998 Acquisitions, and the Probable Purchases 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 unaudited Pro Forma Financial Information (Insignia Merger)
is presented for informational purposes only and is not necessarily indicative
of the financial position or results of operations of the Partnership 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 the Partnership's management, all material
adjustments necessary to reflect the effects of these transactions have been
made.
P-4
<PAGE> 122
AIMCO PROPERTIES, L.P.
PRO FORMA CONSOLIDATED BALANCE SHEET (INSIGNIA MERGER)
AS OF SEPTEMBER 30, 1998
IN THOUSANDS, EXCEPT SHARE DATA
<TABLE>
<CAPTION>
COMPLETED
TRANSACTIONS IFG AIMCO BEFORE IFG
AND PROBABLE IFG MERGER IFG REORGANIZATION
HISTORICAL(A) PURCHASES(B) HISTORICAL(C) ADJUSTMENTS(D) REORGANIZATION(E) ADJUSTMENTS(F)
------------- ------------ ------------- -------------- ----------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Real estate.............. $2,355,122 $202,332 $ 44,488 $ 23,880(G) $2,625,822 $ --
Property held for sale... 42,212 -- -- -- 42,212 --
Investments in
securities............. -- -- -- 443,513(G)
(443,513)(H) -- --
Investments in and notes
receivable from
unconsolidated
subsidiaries........... 127,082 -- -- -- 127,082 59,195(I)
Investments in and notes
receivable from
unconsolidated real
estate partnerships.... 246,847 -- 232,892 444,570(G) 924,309 --
Mortgage notes
receivable............. -- -- 20,916 -- 20,916
Cash and cash
equivalents............ 43,681 6,107 73,064 -- 122,852 (17,897)(J)
Restricted cash.......... 83,187 -- 2,691 -- 85,878 (1,352)(J)
Accounts receivable...... 11,545 -- 54,060 (32,234)(G) 33,371 (5,471)(J)
Deferred financing
costs.................. 21,835 -- 7,020 (7,020)(G) 21,835 --
Goodwill................. 120,503 -- 19,503 111,018(G) 251,024 --
Property management
contracts.............. -- -- 86,419 31,147(G) 117,566 (79,195)(I)
Other assets............. 69,935 -- 20,128 (4,533)(G) 85,530 (2,860)(J)
---------- -------- -------- --------- ---------- --------
Total Assets..... $3,121,949 $208,439 $561,181 $ 566,828 $4,458,397 $(47,580)
========== ======== ======== ========= ========== ========
Secured notes payable.... $ 774,676 $122,568 $ 29,002 $ -- $ 926,246 $ --
Secured tax-exempt bond
financing.............. 399,925 -- -- -- 399,925 --
Secured short-term
financing.............. 50,000 (50,000) 332,691 (300,000)(G) 32,691 --
Unsecured short-term
financing.............. 50,800 (50,800) -- 300,000(G) 300,000 --
Accounts payable, accrued
and other
liabilities............ 131,799 -- 33,241 50,000(G)
53,333(G)
4,935(G)
2,525(G) 275,833 (27,580)(J)
Deferred tax liability... -- -- 18,802 1,198(G) 20,000 (20,000)(I)
Security deposits and
prepaid rents.......... 13,171 -- 3,533 (3,533) 13,171 --
---------- -------- -------- --------- ---------- --------
1,420,371 21,768 417,269 108,458 1,967,866 (47,580)
Minority interest........ 42,086 37,345 108,485 (108,485)(G) 79,431 --
Company-obligated
mandatorily redeemable
convertible securities
of a subsidiary
trust.................. -- -- 144,282 5,218 149,500 --
Redeemable Partnership
Units.................. 232,405 45,176 -- -- 277,581 --
Partners' capital and
shareholders' equity
Common stock........... -- -- 320 (320)(G) -- --
Additional paid-in
capital.............. -- -- (86,959) 86,959(G) -- --
Distributions in excess
of earnings.......... -- -- (22,216) 22,216(G) -- --
General and Special
Limited Partner...... 1,039,525 4,150 -- 443,513(H)
9,269(G) 1,496,457 --
Preferred Units........ 387,562 100,000 -- -- 487,562 --
---------- -------- -------- --------- ---------- --------
1,427,087 104,150 (108,855) 561,637 1,984,019 --
---------- -------- -------- --------- ---------- --------
Total Liabilities
and Equity..... $3,121,949 $208,439 $561,181 $ 566,828 $4,458,397 $(47,580)
========== ======== ======== ========= ========== ========
<CAPTION>
PRO FORMA
----------
<S> <C>
Real estate.............. $2,625,822
Property held for sale... 42,212
Investments in
securities.............
--
Investments in and notes
receivable from
unconsolidated
subsidiaries........... 186,277(K)
Investments in and notes
receivable from
unconsolidated real
estate partnerships.... 924,309
Mortgage notes
receivable............. 20,916
Cash and cash
equivalents............ 104,955
Restricted cash.......... 84,526
Accounts receivable...... 27,900
Deferred financing
costs.................. 21,835
Goodwill................. 251,024
Property management
contracts.............. 38,371
Other assets............. 82,670
----------
Total Assets..... $4,410,817
==========
Secured notes payable.... $ 926,246
Secured tax-exempt bond
financing.............. 399,925
Secured short-term
financing.............. 32,691
Unsecured short-term
financing.............. 300,000
Accounts payable, accrued
and other
liabilities............
248,253
Deferred tax liability... --
Security deposits and
prepaid rents.......... 13,171
----------
1,920,286
Minority interest........ 79,431
Company-obligated
mandatorily redeemable
convertible securities
of a subsidiary
trust.................. 149,500
Redeemable Partnership
Units.................. 277,581
Partners' capital and
shareholders' equity
Common stock........... --
Additional paid-in
capital.............. --
Distributions in excess
of earnings.......... --
General and Special
Limited Partner......
1,496,457
Preferred Units........ 487,562
----------
1,984,019
----------
Total Liabilities
and Equity..... $4,410,817
==========
</TABLE>
P-5
<PAGE> 123
- ---------------
(A) Represents the unaudited historical consolidated financial position of the
Partnership as of September 30, 1998.
(B) Represents adjustments to reflect the purchase of ten properties for an
aggregate purchase price of $140.2 million; the Class J Preferred Stock
Offering; the Probable Purchases; and the Preferred Partnership Unit
Offering.
(C) Represents the unaudited historical consolidated financial position of IFG
as of September 30, 1998.
(D) Represents the following adjustments occurring as a result of the IFG
Merger: (i) the issuance of 8,423,751 shares of AIMCO Common Stock, based
on consideration to holders of IFG common stock outstanding as of the date
of the IFG Merger; (ii) the issuance of 4,826,745 shares of AIMCO Class A
Common Stock to holders of IPT common stock (other than AIMCO); (iii) the
payment of a special dividend of $50,000; (iv) the assumption of $149,500
of the convertible debentures of IFG; (v) the allocation of the combined
purchase price of IFG and IPT based on the preliminary estimates of
relative fair market value of the assets and liabilities of IFG and IPT;
and (vi) the contribution by AIMCO of substantially all the assets and
liabilities of Insignia and IPT to the Partnership in exchange for OP
Units.
(E) Represents the effects of AIMCO's acquisition of IFG immediately after the
IFG Merger. These amounts do not give effect to the IFG Reorganization,
which includes the transfers of certain assets and liabilities of IFG to
the combined Unconsolidated Subsidiaries. The IFG Reorganization occurred
immediately after the IFG Merger so that AIMCO could maintain its
qualification as a REIT. This column is included as an intermediate step to
assist the reader in understanding the entire nature of the IFG Merger and
related transactions.
(F) Represents adjustments related to the IFG Reorganization, whereby,
following the IFG Merger, the Partnership contributed or sold to the
combined Unconsolidated Subsidiaries certain assets and liabilities of IFG,
primarily management contracts and related working capital assets and
liabilities related to IFG's third party property management operations.
The adjustments reflect the transfer of assets valued at the Partnership's
new basis resulting from the allocation of the purchase price of IFG. The
Partnership received non-voting preferred stock as consideration in
exchange for the net assets contributed. The net deferred tax liability is
assumed by the Unconsolidated Subsidiaries as it resulted from the assets
and liabilities transferred to the Unconsolidated Subsidiaries.
(G) In connection with the IFG Merger and the IPT Merger, AIMCO became
obligated to issue a total of 13,250,496 shares of AIMCO Common Stock
The total purchase price of IFG and IPT is $1,128,009, as follows:
<TABLE>
<S> <C>
Issuance of 8,423,751 shares of AIMCO Common Stock in the
IFG Merger, at $34.658 per share.......................... $ 291,949
Issuance of 4,826,745 shares of AIMCO Common Stock in the
IPT Merger, at $31.50 per share........................... 151,564
Assumption of Convertible Debentures........................ 149,500
Assumption of liabilities as indicated in the Merger
Agreement................................................. 397,459
Transaction costs........................................... 53,333
Generation of deferred tax liability........................ 20,000
Special dividend............................................ 50,000
Purchase of IFG Common Stock prior to merger................ 4,935
Consideration for options................................... 9,269
----------
Total............................................. $1,128,009
==========
</TABLE>
P-6
<PAGE> 124
The purchase price was allocated to the various assets of IFG acquired in
the IFG Merger, as follows:
<TABLE>
<S> <C>
Purchase price.............................................. $1,128,009
Historical basis of IFG's assets acquired................... (561,181)
----------
Step-up to record the fair value of IFG's assets
acquired............................................... $ 566,828
==========
</TABLE>
This step-up was applied to IFG's assets as follows:
<TABLE>
<S> <C>
Real estate................................................. $ 23,880
Investment in real estate partnerships...................... 444,570
Decrease in accounts receivable............................. (32,234)
Decrease in deferred loan costs............................. (7,020)
Management contracts........................................ 31,147
Increase in goodwill........................................ 111,018
Reduction in value of other assets.......................... (4,533)
--------
Total............................................. $566,828
========
</TABLE>
The fair value of IFG's assets, primarily the real estate and management
contracts, was calculated based on estimated future cash flows of the
underlying assets.
As of September 30, 1998, IFG's stockholder's equity was $(108,855), which
is detailed as follows:
<TABLE>
<S> <C>
Common stock................................................ $ 320
Additional paid-in capital.................................. (86,959)
Distributions in excess of earnings......................... (22,216)
---------
Total............................................. $(108,855)
=========
</TABLE>
Upon completion of the IFG Merger, the entire amount of the stockholder's
equity was eliminated.
In addition, the minority interest in other partnerships of IFG of $108,485
will be eliminated upon the IPT Merger.
At the time of the IFG Merger, AIMCO obtained unsecured short-term
financing of $300 million. The proceeds were used to repay secured
short-term financing of IFG that AIMCO assumed.
(H) Represents the issuance of a total of 13,250,496 OP Units to AIMCO and the
concurrent issuance of 13,250,496 shares of AIMCO Common Stock to IFG and
IPT stockholders, in exchange for all the shares of IFG and IPT common
stock.
In accordance with the IFG Merger Agreement, AIMCO became obligated to
issue 8,423,751 shares of Class E Preferred Stock, approximately equal to
$292 million. Each share of Class E Preferred Stock will automatically
convert to one share of AIMCO Common Stock upon the payment of the special
dividend thereon. As such, for the purpose of preparing the pro forma
financial statements, AIMCO's management believes that the Class E
Preferred Stock is substantially the same as AIMCO Common Stock, and that
the fair value of the Class E Preferred Stock approximates the fair value
of the AIMCO Common Stock. Upon the payment of the special dividend on the
Class E Preferred Stock and the conversion of the Class E Preferred Stock
to AIMCO Common Stock, the former IFG stockholders will own approximately
15.0% of the AIMCO Common Stock and the IPT stockholders will own
approximately 7.3% of AIMCO Common Stock. The special dividend on the Class
E Preferred Stock is intended to represent a distribution in an amount at
least equal to the earnings and profits of IFG at the time of the IFG
Merger, to which AIMCO succeeds.
Concurrent with the issuance of Class E Preferred Stock, the Partnership
will issue comparable Class E Preferred Units to AIMCO. The Class E
Preferred Units will have terms substantially the same as the Class E
Preferred Stock.
(I) Represents the increase in the Partnership's investment in Unconsolidated
Subsidiaries to reflect the contribution or sale of property management
contracts, including the related deferred tax liability, in exchange for
preferred stock and a note payable from the Unconsolidated Subsidiaries.
These assets and
P-7
<PAGE> 125
liabilities are valued at the Partnership's new basis resulting from the
allocation of the purchase price of IFG.
(J) Represents certain assets and liabilities of IFG, primarily related to the
management operations of IFG, contributed or sold by the Partnership to the
Unconsolidated Subsidiaries,
(K) Represents notes receivable from the Unconsolidated Subsidiaries of
$95,000, advances to the Unconsolidated Subsidiaries of $42,792, and equity
in the Unconsolidated Subsidiaries of $48,485. The combined pro forma
balance sheet of the Unconsolidated Subsidiaries as of September 30, 1998
is presented below, which reflects the effects of the IFG Merger, the IPT
Merger, and the IFG Reorganization as if such transactions had occurred as
of September 30, 1998.
P-8
<PAGE> 126
UNCONSOLIDATED SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET (INSIGNIA MERGER)
AS OF SEPTEMBER 30, 1998
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
IFG
HISTORICAL REORGANIZATION(I) PRO FORMA
---------- ----------------- ---------
<S> <C> <C> <C>
ASSETS
Real estate............................................ $ 22,376 $ -- $ 22,376
Cash and cash equivalents.............................. 16,919 17,897(ii) 34,816
Restricted cash........................................ 5,507 1,352(ii) 6,859
Management contracts................................... 47,846 79,195(iii) 127,041
Accounts receivable.................................... 13,109 5,471(ii) 18,580
Deferred financing costs............................... 3,117 -- 3,117
Goodwill............................................... 43,544 -- 43,544
Other assets........................................... 51,498 2,860(ii) 54,358
-------- -------- --------
$203,916 $106,775 $310,691
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Secured notes payable.................................. $114,302 $ 45,000(iii) $159,302
Accounts payable, accrued and other liabilities........ 56,773 27,580(ii) 84,353
Security deposits and deferred income.................. 334 --(ii) 334
Deferred tax liability................................. -- 20,000(iii) 20,000
-------- -------- --------
171,409 92,580 263,989
Common stock........................................... 2,061 747(iv) 2,808
Preferred stock........................................ 34,290 14,195(iii) 48,485
Retained earnings...................................... (3,844) -- (3,844)
Notes receivable on common stock purchases............. -- (747)(iv) (747)
-------- -------- --------
32,507 14,195 46,702
-------- -------- --------
$203,916 $106,775 $310,691
======== ======== ========
</TABLE>
- ---------------
(i) Represents adjustments related to the IFG Reorganization, whereby,
following the IFG Merger, the Partnership contributed or sold to the
combined Unconsolidated Subsidiaries certain assets and liabilities of IFG,
primarily related to the management operations owned by IFG. The
adjustments reflect the transfer of assets valued at the Partnership's new
basis resulting from the allocation of the purchase price of IFG. The
Partnership received non-voting preferred stock as consideration in
exchange for the net assets contributed. The net deferred tax liability is
assumed by the Unconsolidated Subsidiaries as it resulted from the assets
and liabilities transferred to the Unconsolidated Subsidiaries.
(ii) Represents certain assets and liabilities of IFG, primarily related to the
management operations of IFG, contributed or sold by the Partnership to the
Unconsolidated Subsidiaries, valued at the Partnership's new basis
resulting from the allocation of the purchase price of IFG.
(iii)Represents the transfer or sale of management contracts, the establishment
of an intercompany note, and the establishment of the related estimated net
deferred Federal and state tax liabilities at a combined rate of 40% for
the estimated difference between the book and tax basis of the net assets
of the Unconsolidated Subsidiaries. The primary component of the deferred
tax liability is the difference between the new basis of the property
management contracts, as a result of the allocation of the purchase price
of IFG, and the historical tax basis.
(iv) Represents the issuance of common stock to the common stockholders of the
Unconsolidated Subsidiaries in exchange for notes receivable, in order for
the common stockholders to maintain their respective ownership interest in
the Unconsolidated Subsidiaries.
P-9
<PAGE> 127
AIMCO PROPERTIES, L.P.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER)
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
COMPLETED
TRANSACTIONS
AND AMBASSADOR
PROBABLE NHP AMBASSADOR PURCHASE PRICE IFG AS
HISTORICAL(A) PURCHASES(B) TRANSACTIONS(C) HISTORICAL(D) ADJUSTMENTS(E) ADJUSTED(F)
------------- ------------ --------------- ------------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Rental and other property
revenues........................ $193,006 $120,337(I)
11,012(J) $ 6,660 $ 93,329 $ -- $ 6,912
Property operating expenses....... (76,168) (59,466)(I)
(4,860)(J) (2,941) (36,088) -- (3,307)
Owned property management
expense......................... (6,620) (4,327)(I)
(602)(J) (282) -- -- --
Depreciation...................... (37,741) (26,645)(I)
(2,172)(J) (1,414) (18,979) (5,997)(O) (966)
-------- -------- ------- -------- ------- --------
Income from property operations... 72,477 33,277 2,023 38,262 (5,997) 2,639
-------- -------- ------- -------- ------- --------
Management fees and other
income.......................... 13,937 -- 7,813 -- -- 94,330
Management and other expenses..... (9,910) -- (5,394) -- -- (57,615)
Corporate overhead allocation..... (588) -- -- -- -- --
Amortization...................... (1,401) -- (5,800) -- -- (16,768)
-------- -------- ------- -------- ------- --------
Income from service company
business........................ 2,038 -- (3,381) -- -- 19,947
Minority interest in service
company business................ (10) -- -- -- -- --
-------- -------- ------- -------- ------- --------
AIMCO's share of income from
service company business........ 2,028 -- (3,381) -- -- 19,947
-------- -------- ------- -------- ------- --------
General and administrative
expenses........................ (5,396) -- (1,025) (7,392) 7,392(P) (21,199)
Interest expense.................. (51,385) (3,451)(K)
(2,497)(L) (5,462) (26,987) (221)(Q) (9,035)
Interest income................... 8,676 -- 1,900 -- -- 10,967
Minority interest................. 1,008 458(M) 16 (851) 705(R) (12,871)
Equity in losses of unconsolidated
partnerships.................... (1,798) (122)(N) (8,542) 405 -- 12,515
Equity in earnings of
unconsolidated subsidiaries..... 4,636 -- 5,790 -- -- --
-------- -------- ------- -------- ------- --------
Income (loss) from operations..... 30,246 27,665 (8,681) 3,437 1,879 2,963
Income tax provision.............. -- -- -- -- -- 1,701
Gain on dispositions of
property........................ 2,720 (2,720) -- -- -- 80
-------- -------- ------- -------- ------- --------
Income (loss) before extraordinary
item............................ 32,966 24,945 (8,681) 3,437 1,879 4,744
Extraordinary item -- early
extinguishment of debt.......... (269) 269 -- -- -- --
-------- -------- ------- -------- ------- --------
Net income........................ 32,697 25,214 (8,681) 3,437 1,879 4,744
Income attributable to preferred
unitholders..................... 2,315 39,859 -- -- -- --
-------- -------- ------- -------- ------- --------
Income attributable to common
unitholders..................... $ 30,382 $(14,645) $(8,681) $ 3,437 $ 1,879 $ 4,744
======== ======== ======= ======== ======= ========
Basic earnings per OP unit........ $ 1.09
========
Diluted earnings per OP unit...... $ 1.08
========
Weighted average OP units
outstanding..................... 27,732
========
Weighted average OP units and
equivalents outstanding......... 28,113
========
<CAPTION>
IFG IFG
MERGER REORGANIZATION
ADJUSTMENTS(G) ADJUSTMENTS(H) PRO FORMA
-------------- -------------- ---------
<S> <C> <C> <C>
Rental and other property
revenues........................
$ -- $ -- $ 431,256
Property operating expenses.......
-- -- (182,830)
Owned property management
expense.........................
-- -- (11,831)
Depreciation......................
(2,350)(S) -- (96,264)
-------- -------- ---------
Income from property operations... (2,350) -- 140,331
-------- -------- ---------
Management fees and other
income.......................... -- (74,404)(X) 41,676
Management and other expenses..... -- 49,236(X) (23,683)
Corporate overhead allocation..... -- -- (588)
Amortization...................... (32,699)(T) 30,188(Y) (26,480)
-------- -------- ---------
Income from service company
business........................ (32,699) 5,020 (9,075)
Minority interest in service
company business................ -- -- (10)
-------- -------- ---------
AIMCO's share of income from
service company business........ (32,699) 5,020 (9,085)
-------- -------- ---------
General and administrative
expenses........................ -- 6,249(X) (21,371)
Interest expense..................
(14,750) -- (113,788)
Interest income................... -- 191(Z) 21,734(BB)
Minority interest................. 1,552(U) -- (9,983)
Equity in losses of unconsolidated
partnerships.................... (29,995)(V) -- (27,537)
Equity in earnings of
unconsolidated subsidiaries..... -- (4,578)(AA) 5,848(DD)
-------- -------- ---------
Income (loss) from operations..... (78,242) 6,882 (13,851)
Income tax provision.............. (1,701)(W) -- --
Gain on dispositions of
property........................ (80) -- --
-------- -------- ---------
Income (loss) before extraordinary
item............................ (80,023) 6,882 (13,851)
Extraordinary item -- early
extinguishment of debt.......... -- -- --
-------- -------- ---------
Net income........................ (80,023) 6,882 (13,851)
Income attributable to preferred
unitholders..................... -- -- 42,174(CC)
-------- -------- ---------
Income attributable to common
unitholders..................... $(80,023) $ 6,882 $ (56,025)(BB)
======== ======== =========
Basic earnings per OP unit........ $ (0.83)(BB)
=========
Diluted earnings per OP unit...... $ (0.83)(BB)
=========
Weighted average OP units
outstanding..................... 67,522
=========
Weighted average OP units and
equivalents outstanding......... 68,366
=========
</TABLE>
P-10
<PAGE> 128
- ---------------
(A) Represents the Partnership's audited consolidated results of operations
for the year ended December 31, 1997.
(B) Represents adjustments to reflect the following as if they had occurred
on January 1, 1997: (i) the 1997 Acquisitions; (ii) the 1997 Stock
Offerings; (iii) the 1997 Dispositions; (iv) the 1998 Stock Offerings;
(v) the 1998 Acquisitions; (vi) the Probable Purchases; (vii) the 1998
Dispositions; and (v) the Preferred Partnership Unit Offering.
(C) Represents adjustments to reflect the purchase of the NHP Real Estate
Companies, the NHP Merger, and the NHP Reorganization, as if the
transactions had taken place on January 1, 1997. These adjustments are
detailed, as follows:
<TABLE>
<CAPTION>
NHP
REAL ESTATE NHP NHP NHP NHP
PURCHASE(I) HISTORICAL(II) ADJUSTMENTS(III) REORGANIZATION(IV) TRANSACTIONS
----------- -------------- ---------------- ------------------ ------------
<S> <C> <C> <C> <C> <C>
Rental and other property
revenues................. $ 6,660(v) $ 16,842 $ -- $(16,842)(xvii) $ 6,660
Property operating
expenses................. (2,941)(v) (8,411) -- 8,411 (xvii (2,941)
Owned property management
expense.................. (282)(v) (862) -- 862 (xvii (282)
Depreciation............... (1,414)(vi) (2,527) (693)(xi) 3,220 (xvii (1,414)
------- -------- ------- -------- -------
Income from property
operations............... 2,023 5,042 (693) (4,349) 2,023
------- -------- ------- -------- -------
Management fees and other
income................... 1,405(vii) 72,176 -- (65,768)(xviii) 7,813
Management and other
expenses................. (2,263)(viii) (35,267) -- 32,136 (xviii (5,394)
Amortization............... -- (9,111) (4,432)(xii) 7,743 (xix (5,800)
------- -------- ------- -------- -------
Income from service company
business................. (858) 27,798 (4,432) (25,889) (3,381)
------- -------- ------- -------- -------
General and administrative
expenses................. -- (16,266) 8,668 (xiii 6,573 (xviii (1,025)
Interest expense........... (5,082)(ix) (10,685) -- 10,305(xx) (5,462)
Interest income............ 540(v) 1,963 -- (603)(xxi) 1,900
Minority interest.......... 16(v) -- -- -- 16
Equity in losses of
unconsolidated
partnerships............. (3,905)(x) -- (4,631)(xiv) (6) (8,542)
Equity in earnings of
unconsolidated
subsidiaries............. -- -- (4,636)(xv) 10,426 (xxii 5,790
------- -------- ------- -------- -------
Income (loss) from
operations............... (7,266) 7,852 (5,724) (3,543) (8,681)
Income tax provision....... -- (3,502) 3,502 (xvi -- --
------- -------- ------- -------- -------
Net income (loss).......... $(7,266) $ 4,350 $(2,222) $ (3,543) $(8,681)
======= ======== ======= ======== =======
</TABLE>
- ---------------
(i) Represents the adjustment to record activity from January 1, 1997 to
the date of acquisition, as if the acquisition of the NHP Real
Estate Companies had occurred on January 1, 1997. The historical
financial statements of the NHP Real Estate Companies consolidate
certain real estate partnerships in which they have an interest that
will be presented on the equity method by the Partnership as a
result of the NHP Real Estate Reorganization. In addition,
represents adjustments to record additional depreciation and
amortization related to the increased basis in the assets of the NHP
Real Estate Companies as a result of the allocation of the purchase
price of the NHP Real Estate Companies and additional interest
expense incurred in connection with borrowings incurred by the
Partnership to consummate the NHP Real Estate Acquisition.
(ii)Represents the unaudited consolidated results of operations of NHP
for the period from January 1, 1997 through December 8, 1997 (date
of the NHP Merger).
P-11
<PAGE> 129
(iii)
Represents the following adjustments occurring as a result of the
NHP Merger: (i) the reduction in personnel costs, primarily
severance costs, pursuant to a restructuring plan; (ii) the
incremental depreciation of the purchase price adjustment related to
real estate; (iii) the incremental amortization of the purchase
price adjustment related to the management contracts, furniture,
fixtures and equipment, and goodwill; (iv) the reversal of equity in
earnings of NHP during the pre-merger period when the Partnership
held a 47.62% interest in NHP; and (v) the amortization of the
increased basis in investments in real estate partnerships based on
the purchase price adjustment related to real estate and an
estimated average life of 20 years.
(iv)Represents adjustments related to the NHP Reorganization, whereby
the Partnership contributed or sold to the Unconsolidated
Subsidiaries and the Unconsolidated Partnership: (i) certain assets
and liabilities of NHP, primarily related to the management
operations and other businesses owned by NHP and (ii) 12 real estate
properties containing 2,905 apartment units. The adjustments
represent (i) the related revenues and expenses primarily related to
the management operations and other businesses owned by NHP and (ii)
the historical results of operations of such real estate
partnerships contributed, with additional depreciation and
amortization recorded related to the Partnership's new basis
resulting from the allocation of the combined purchase price of NHP
and the NHP Real Estate Companies.
(v) Represents adjustments to reflect the acquisition of the NHP Real
Estate Companies and the corresponding historical results of
operations as if they had occurred on January 1, 1997.
(vi)Represents incremental depreciation related to the consolidated real
estate assets purchased from the NHP Real Estate Companies.
Buildings and improvements are depreciated on the straight-line
method over a period of 30 years, and furniture and fixtures are
depreciated on the straight-line method over a period of 5 years.
(vii)
Represents the adjustment to record the revenues from ancillary
businesses purchased from the NHP Real Estate Companies as if the
acquisition had occurred on January 1, 1997.
(viii)
Represents $4,878 related to the adjustment to record the expenses
from ancillary businesses purchased from the NHP Real Estate
Companies as if the acquisition had occurred on January 1, 1997,
less $2,615 related to a reduction in personnel costs pursuant to a
restructuring plan, approved by the Company's senior management,
assuming that the acquisition of the NHP Real Estate Companies had
occurred on January 1, 1997 and that the restructuring plan was
completed on January 1, 1997. The restructuring plan specifically
identifies all significant actions to be taken to complete the
restructuring plan, including the reduction of personnel, job
functions, location and the date of completion.
(ix)Represents adjustments in the amount of $3,391 to reflect the
acquisition of the NHP Real Estate Companies and the corresponding
historical results of operations as if they had occurred on January
1, 1997, as well as the increase in interest expense in the amount
of $1,691 related to borrowings on the Partnership's credit
facilities of $55,807 to finance the NHP Real Estate Acquisition.
(x) Represents adjustments in the amount of $2,432 to reflect the
acquisition of the NHP Real Estate Companies and the corresponding
historical results of operations as if they had occurred on January
1, 1997, as well as amortization of $1,473 related to the increased
basis in investment in real estate partnerships, as a result of the
allocation of the purchase price of the NHP Real Estate Companies,
based on an estimated average life of 20 years.
(xi)Represents incremental depreciation related to the real estate
assets purchased from NHP. Buildings and improvements are
depreciated on the straight-line method over a period of 20 years,
and furniture and fixtures are depreciated on the straight-line
method over a period of 5 years.
(xii)
Represents incremental depreciation and amortization of the tangible
and intangible assets related to the property management and other
business operated by the Unconsolidated
P-12
<PAGE> 130
Subsidiaries, based on the Partnership's new basis as adjusted by
the allocation of the combined purchase price of NHP including
amortization of management contracts of $3,782, depreciation of
furniture, fixtures and equipment of $2,018 and amortization of
goodwill of $7,743, less NHP's historical depreciation and
amortization of $9,111. Management contracts are amortized using the
straight-line method over the weighted average life of the contracts
estimated to be approximately 15 years. Furniture, fixtures and
equipment are depreciated using the straight-line method over the
estimated life of 3 years. Goodwill is amortized using the
straight-line method over 20 years.
(xiii)
Represents a reduction in personnel costs, primarily severance
costs, pursuant to a restructuring plan, approved by the Company's
senior management, specifically identifying all significant actions
to be taken to complete the restructuring plan, assuming that the
NHP Merger had occurred on January 1, 1997 and that the
restructuring plan was completed on January 1, 1997.
(xiv)
Represents adjustment for amortization of the increased basis in
investments in real estate partnerships, as a result of the
allocation of the combined purchase price of NHP and the NHP Real
Estate Companies, based on an estimated average life of 20 years.
(xv)Represents the reversal of equity in earnings in NHP during the
pre-merger period when the Partnership held a 47.62% interest in
NHP, as a result of the Partnership's acquisition of 100% of the NHP
Common Stock.
(xvi)
Represents the reversal of NHP's income tax provision due to the
restructuring of the management business to the Unconsolidated
Subsidiaries.
(xvii)
Represents the contribution of NHP's 12 real estate properties
containing 2,905 apartment units to the Unconsolidated Partnership
pursuant to the NHP Reorganization.
(xviii)
Represents the historical income and expenses associated with
certain assets and liabilities of NHP that were contributed or sold
to the Unconsolidated Subsidiaries, primarily related to the
management operations and other businesses owned by NHP.
(xix)
Represents the amortization and depreciation of certain management
contracts and other assets of NHP, based on the Partnership's new
basis resulting from the allocation of the purchase price of NHP,
that will be contributed or sold to the Unconsolidated Subsidiaries,
primarily related to the management operations and other businesses
owned by NHP.
(xx)Represents interest expense of $6,020 related to the contribution of
NHP's 12 real estate properties containing 2,905 apartment units to
the Unconsolidated Partnership and interest expense of $4,285
related to the certain assets and liabilities that will be
contributed or sold to the Unconsolidated Subsidiaries pursuant to
the NHP Reorganization.
(xxi)
Represents the interest income of $5,000 earned on notes payable of
$50,000 to the Partnership issued as consideration for certain
assets and liabilities sold to the Unconsolidated Subsidiaries by
the Partnership, net of the elimination of the Partnership's share
of the related interest expense of $4,750 reflected in the equity in
earnings of the Unconsolidated Subsidiaries operating results,
offset by $853 in interest income primarily related to the
management operations and other businesses owned by NHP contributed
or sold to the Unconsolidated Subsidiaries pursuant to the NHP
Reorganization.
(xxii)
Represents the Partnership's equity in earnings of the
Unconsolidated Subsidiaries.
(D) Represents the audited historical statement of operations of Ambassador
for the year ended December 31, 1997. Certain reclassifications have been
made to Ambassador's historical statement of operations to conform to the
Partnership's Statement of Operations presentation. The Ambassador
historical statement of operations excludes extraordinary loss of $1,384
and a loss on sale of an interest rate cap of $509.
(E) Represents the following adjustments occurring as a result of the
Ambassador Merger: (i) the incremental depreciation of the purchase price
adjustment related to real estate; (ii) the reduction in personnel costs,
primarily severance costs, pursuant to a restructuring plan; (iii) the
reduction of
P-13
<PAGE> 131
interest expense resulting from the net reduction of debt; and (iv) the
elimination of the minority interest associated with Jupiter-I, L.P.
(F) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the
IPT Merger, and the spin-off of Holdings as if these transactions had
occurred on January 1, 1997. These adjustments are detailed, as follows:
<TABLE>
<CAPTION>
IFG AMIT HOLDINGS IFG
HISTORICAL(I) MERGER(II) SPIN-OFF(III) AS ADJUSTED
------------- ---------- ------------- -----------
<S> <C> <C> <C> <C>
Rental and other property
revenues....................... $ 6,646 $ 266 $ -- $ 6,912
Property operating expenses...... (3,251) (56) -- (3,307)
Depreciation..................... (966) -- -- (966)
--------- ------- --------- --------
Income from property
operations..................... 2,429 210 -- 2,639
--------- ------- --------- --------
Management fees and other
income......................... 389,626 -- (295,296) 94,330
Management and other expenses.... (315,653) -- 258,038 (57,615)
Amortization..................... (31,709) (303) 15,244 (16,768)
--------- ------- --------- --------
Income from service company
business....................... 42,264 (303) (22,014) 19,947
--------- ------- --------- --------
General and administrative
expenses....................... (20,435) (1,351) 587 (21,199)
Interest expense................. (9,353) -- 318 (9,035)
Interest income.................. 4,571 6,853 (457) 10,967
Minority interest................ (12,448) (382) (41) (12,871)
Equity in income (losses) of
unconsolidated partnership..... 10,027 2,639 (151) 12,515
--------- ------- --------- --------
Income (loss) from operations.... 17,055 7,666 (21,758) 2,963
Income tax provision............. (6,822) (180) 8,703 1,701
Gain on sale of property......... -- 80 -- 80
--------- ------- --------- --------
Net income (loss)................ 10,233 7,566 (13,055) 4,744
========= ======= ========= ========
</TABLE>
- ---------------
(i) Represents the audited consolidated results of operations of IFG for
the year ended December 31, 1997, as reported in IFG's Annual Report
on Form 10-K. Certain reclassifications have been made to IFG's
historical statement of operations to conform to the Partnership's
statement of operations presentation.
(ii)Represents the historical statement of operations of AMIT, as well
as pro forma adjustments related to the AMIT Merger. The AMIT Merger
closed prior to the IFG Merger.
(iii)
Represents the distribution of two shares of Holdings common stock
for each three shares of IFG common stock to holders of IFG common
stock.
(G) Represents the following adjustments occurring as a result of the IFG
Merger and the IPT Merger: (i) the incremental depreciation of the
purchase price adjustment related to consolidated real estate and
investments in real estate partnerships; (ii) the amortization of
goodwill and property management contracts resulting from the IFG Merger;
(iii) the increase in interest expense resulting from the net increase in
debt; and (iv) the elimination of the income tax provision.
(H) Represents adjustments related to the IFG Reorganization, whereby,
following the IFG Merger, the Partnership contributed or sold to the
Unconsolidated Subsidiaries certain assets and liabilities of IFG,
primarily management contracts and related working capital assets and
liabilities related to IFG's third party management operations. The
adjustments reflect the related revenues and expenses primarily related
to the management operations owned by IFG, with additional amortization
recorded related to the Partnership's new basis resulting from the
allocation of the purchase price of IFG.
P-14
<PAGE> 132
(I) Represents adjustments to reflect the 1997 Property Acquisitions and the
1998 Acquisitions, less the 1997 Dispositions and the 1998 Dispositions
as if they had occurred on January 1, 1997. These pro forma operating
results are based on historical results of the properties, except for
depreciation, which is based on the Partnership's investment in the
properties.
These adjustments are as follows:
<TABLE>
<CAPTION>
1997 PROPERTY 1997 1998 1998
ACQUISITIONS DISPOSITIONS ACQUISITIONS DISPOSITIONS TOTAL
------------- ------------ ------------ ------------ --------
<S> <C> <C> <C> <C> <C>
Rental and other
property
revenues........... $ 88,589 $(4,081) $ 39,132 $(3,303) $120,337
Property operating
expense............ (44,109) 1,944 (18,655) 1,354 (59,466)
Owned property
management
expense............ (3,233) 133 (1,349) 122 (4,327)
Depreciation......... (16,839) 452 (10,946) 688 (26,645)
</TABLE>
(J) Represents adjustments to reflect the Probable Purchases as if they had
occurred on January 1, 1997. These pro forma operating results are based
on historical results of the properties, except for depreciation, which
is based on the Partnership's investment in the properties.
(K) Represents adjustments to interest expense for the following:
<TABLE>
<S> <C>
Borrowings on the Partnership's credit facilities and other
loans and mortgages assumed in connection with the 1997
Property Acquisitions..................................... $(29,490)
Repayments on the Partnership's credit facilities and other
indebtedness with proceeds from the 1997 Dispositions and
the 1997 Stock Offerings.................................. 19,568
Repayments on the Partnership's credit facilities with
proceeds from a dividend received from one of the
Unconsolidated Subsidiaries............................... 1,889
Borrowings on the Partnership's credit facilities and other
loans and mortgages assumed in connection with the 1998
Acquisitions.............................................. (15,994)
Repayments on the Partnership's credit facilities and other
indebtedness with proceeds from the 1998 Dispositions and
the 1998 Stock Offerings.................................. 20,113
Repayments on AIMCO's credit facilities and other
indebtedness with proceeds from the Preferred Partnership
Unit Offering............................................. 463
--------
$ (3,451)
========
</TABLE>
(L) Represents adjustments to interest expense related to the assumption of
mortgage debt in connection with the Probable Purchases.
(M) Represents (i) loss of $181 related to limited partners in consolidated
partnerships acquired in connection with the 1997 Property Acquisitions
and the 1998 Property Acquisitions and (ii) income of $502 allocable to
the Partnership Preferred Units.
(N) Represents the reduction in the Partnership's earnings in unconsolidated
partnerships as a result of the consolidation of additional partnerships
resulting from additional ownership acquired through tender offers.
(O) 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.
P-15
<PAGE> 133
(P) Decrease results from identified historical costs of certain items which
will be eliminated or reduced as a result of the Ambassador Merger, as
follows:
<TABLE>
<S> <C>
Duplication of public company expenses...................... $ 724
Reduction in salaries and benefits.......................... 4,197
Merger related costs........................................ 524
Other....................................................... 1,947
------
$7,392
======
</TABLE>
The reduction in salaries and benefits is pursuant to a restructuring
plan, approved by the Company's senior management, assuming that the
Ambassador Merger had occurred on January 1, 1997 and that the
restructuring plan was completed on January 1, 1997. The restructuring
plan specifically identifies all significant actions to be taken to
complete the restructuring plan, including the reduction of personnel,
job functions, location and date of completion.
(Q) Represents the decrease in interest expense of $3,612 related to the
repayment of the Ambassador revolving lines of credit upon consummation
of the Ambassador Merger, offset by an increase in interest expense of
$3,833 related to borrowings under the Partnership's credit facilities.
(R) Represents elimination of minority interest in Jupiter-I, L.P. resulting
from the redemption of limited partnership interests not owned by
Ambassador in connection with the Ambassador Merger.
(S) Represents incremental depreciation related to the consolidated real
estate assets purchased in connection with the IFG Merger and IPT Merger,
based on the Partnership's new basis resulting from the allocation of the
purchase price of IFG and IPT. Buildings and improvements are depreciated
on the straight-line method over a period of 20 years, and furniture and
fixtures are depreciated on the straight-line method over a period of 5
years.
(T) Represents incremental depreciation and amortization of the tangible and
intangible assets related to the property management business of IFG,
based on the Partnership's new basis resulting from the allocation of the
purchase price of IFG, including amortization of property management
contracts of $38,885, amortization of goodwill of $6,526, and
depreciation of furniture, fixtures, and equipment of $3,753, less IFG's
historical depreciation and amortization of $16,465. Property management
contracts are amortized using the straight-line method over a period of
three years. Furniture, fixtures, and equipment are depreciated using the
straight-line method over a period of three years. Goodwill is amortized
using the straight-line method over 20 years.
(U) Represents elimination of minority interest of IPT resulting from the IPT
merger.
(V) Represents amortization related to the increased basis in investment in
real estate partnerships, as a result of the allocation of the purchase
price of IFG and IPT, based on an estimated average life of 20 years, and
based on the Partnership's new basis resulting from the allocation of the
purchase price of IFG and IPT.
(W) Represents the reversal of IFG's income tax provision.
(X) Represents the historical income and expenses associated with certain
assets and liabilities of IFG that were contributed or sold to the
Unconsolidated Subsidiaries, primarily related to the management
operations of IFG.
(Y) Represents the depreciation and amortization of certain management
contracts and furniture, fixtures, and equipment that were contributed or
sold to the Unconsolidated Subsidiaries, primarily related to the
management operations of IFG, based on the Partnership's new basis
resulting from the allocation of the purchase price of IFG.
(Z) Represents interest income of $3,825 earned on notes payable of $45,000
to the Partnership issued as consideration for certain assets and
liabilities sold to the Unconsolidated Subsidiaries by the Partnership,
net of the elimination of the Partnership's share of the related interest
expense of $3,634 reflected on the equity in earnings of the
Unconsolidated Subsidiaries.
(AA) Represents the Partnership's equity in earnings of the Unconsolidated
Subsidiaries.
P-16
<PAGE> 134
(BB) The following table presents the net impact to pro forma net loss
applicable to holders of OP Units and net loss per OP Units assuming the
interest rate per annum increases by 0.25%:
<TABLE>
<S> <C>
Increase in interest expense................................ $ 938
========
Net income.................................................. $(14,789)
========
Net loss attributable to OP unitholders..................... $(56,963)
========
Basic loss per OP unit...................................... $ (0.84)
========
Diluted loss per OP unit.................................... $ (0.84)
========
</TABLE>
(CC) Represents the net income attributable to holders of the Class B
Preferred Units, the Class C Preferred Units, the Class D Preferred
Units, the Class G Preferred Units, the Class H Preferred Units and the
Class J Preferred Units as if these Preferred Units had been issued as of
January 1, 1997.
(DD) Represents the Partnership's equity in earnings in the Unconsolidated
Subsidiaries of $(2,536), plus the elimination of intercompany interest
expense of $8,384. The combined Pro Forma Statement of Operations of the
Unconsolidated Subsidiaries for the year ended December 31, 1997 is
presented below, which represents the effects of the Ambassador Merger,
the NHP Merger, the NHP Reorganization, the IFG Merger, and the IFG
Reorganization as if these transactions had occurred as of January 1,
1997.
P-17
<PAGE> 135
UNCONSOLIDATED SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER)
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
REORGANIZATION IFG
HISTORICAL(I) ADJUSTMENTS(II) REORGANIZATION(III) PRO FORMA
------------- --------------- ------------------- ---------
<S> <C> <C> <C> <C>
Rental and other property revenues...... $ 6,194 $ 6,371(iv) $ -- $ 12,565
Property operating expenses............. (3,355) (3,531)(iv) -- (6,886)
Owned property management expense....... (147) (478)(iv) -- (625)
Depreciation expense.................... (1,038) (767)(iv) -- (1,805)
-------- -------- -------- --------
Income from property operations......... 1,654 1,595 -- 3,249
-------- -------- -------- --------
Management fees and other income........ 23,776 41,992(v) 74,404(x) 140,172
Management and other expenses........... (11,733) (20,403)(v) (49,236)(x) (81,372)
Amortization............................ (3,726) (4,017)(v) (30,188)(xi) (37,931)
-------- -------- -------- --------
Income from service company............. 8,317 17,572 (5,020) 20,869
General and administrative expense...... -- (6,573)(v) (6,249)(x) (12,822)
Interest expense........................ (6,058) (5,849)(vi) (3,825)(xii) (15,732)
Interest income......................... 1,001 (148)(v) -- 853
Minority interest....................... (2,819) 2,198(viii) -- (621)
Equity in losses of unconsolidated
partnerships.......................... (1,028) 1,028(iv) -- --
Equity in earnings of Unconsolidated
Subsidiaries.......................... 2,943 (2,943)(vii) -- --
-------- -------- -------- --------
Income (loss) from operations........... 4,010 6,880 (15,094) (4,204)
Income tax provision.................... (1,902) (3,013)(ix) 6,450(xiii) 1,535
-------- -------- -------- --------
Net income (loss)....................... $ 2,108 $ 3,867 $ (8,644) $ (2,669)
======== ======== ======== ========
Income attributable to preferred
unitholders........................... $ 2,198 $ 3,478 $ (8,212) $ (2,536)
======== ======== ======== ========
Income (loss) attributable to common
unitholders........................... $ (90) $ 389 $ (432) $ (133)
======== ======== ======== ========
</TABLE>
- ---------------
(i) Represents the historical results of operations of the Unconsolidated
Subsidiaries for the year ended December 31, 1997.
(ii) Represents adjustments related to the NHP Reorganization, which includes
the sale or contribution of 14 properties containing 2,725 apartment units
from the unconsolidated partnerships to the Unconsolidated Subsidiaries,
as well as the sale or contribution of 12 properties containing 2,905
apartment units from the Unconsolidated Subsidiaries to the Unconsolidated
Partnership.
(iii) Represents adjustments related to the IFG Reorganization, whereby,
following the IFG Merger, the Partnership contributed or sold to the
Unconsolidated Subsidiaries certain assets and liabilities of IFG,
primarily related to the management operations owned by IFG. The
adjustments reflect the related revenues and expenses primarily related to
the management operations owned by IFG, with additional amortization
recorded related to the Partnership's new basis resulting from the
allocation of the purchase price of IFG.
(iv) Represents adjustments for the historical results of operations of the 14
real estate properties contributed or sold to the Unconsolidated
Subsidiaries, offset by the historical results of operations of the 12
real estate properties contributed or sold to the Unconsolidated
Partnership, with additional depreciation recorded related to the
Partnership's new basis resulting from the allocation of purchase price of
NHP and the NHP Real Estate Companies.
P-18
<PAGE> 136
(v) Represents adjustments to reflect income and expenses associated with
certain assets and liabilities of NHP contributed or sold to the
Unconsolidated Subsidiaries.
(vi) Represents adjustments of $6,058 to reverse the historical interest
expense of the Unconsolidated Subsidiaries, which resulted from its
original purchase of NHP Common Stock, offset by $2,622 related to the
contribution or sale of the 14 real estate properties, $4,285 related to
assets and liabilities transferred from the Partnership to the
Unconsolidated Subsidiaries and $5,000 related to a note payable to the
Partnership.
(vii) Represents the reversal of the historical equity in earnings of NHP for
the period in which NHP was not consolidated by the Unconsolidated
Subsidiaries.
(viii)Represents the minority interest in the operations of the 14 real estate
properties.
(ix) Represents the estimated Federal and state tax provisions, which are
calculated on the pro forma operating results of the Unconsolidated
Subsidiaries, excluding amortization of goodwill which is not deductible
for tax purposes.
(x) Represents the historical income and expenses associated with certain
assets and liabilities of IFG that were contributed or sold to the
Unconsolidated Subsidiaries, primarily related to the management
operations of IFG.
(xi) Represents the depreciation and amortization of certain management
contracts and furniture, fixtures, and equipment that were contributed or
sold to the Unconsolidated Subsidiaries, primarily related to the
management operations of IFG, based on the Partnership's new basis
resulting from the allocation of the purchase price of IFG.
(xii) Represents adjustment for interest expense related to a note payable to
the Partnership.
(xiii)Represents the estimated Federal and state tax provisions, which are
calculated on the pro forma operating results of the Unconsolidated
Subsidiaries, excluding amortization of goodwill, which is not deductible
for tax purposes.
P-19
<PAGE> 137
AIMCO PROPERTIES, L.P.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
COMPLETED
TRANSACTIONS AMBASSADOR
AND PROBABLE AMBASSADOR PURCHASE PRICE IFG AS
HISTORICAL(A) PURCHASES(B) HISTORICAL(C) ADJUSTMENTS(D) ADJUSTED(E)
------------- ------------ ------------- -------------- -----------
<S> <C> <C> <C> <C> <C>
Rental and other property revenues............. $ 265,700 $ 19,603(H) $ $ $
8,398(I) 35,480 -- 8,126
Property operating expenses.................... (101,600) (9,009)(H)
(3,745)(I) (14,912) -- (2,585)
Owned property management expense.............. (7,746) (728)(H)
(459)(I) -- -- --
Depreciation................................... (59,792) (4,886)(H)
(2,624)(I) (7,270) (1,420)(M) (904)
--------- -------- -------- ------- --------
Income from property operations................ 96,562 6,550 13,298 (1,420) 4,637
--------- -------- -------- ------- --------
Management fees and other income............... 13,968 -- -- -- 71,155
Management and other expenses.................. (8,101) -- -- -- (41,477)
Corporate overhead allocation.................. (196) -- -- -- --
Amortization................................... (3) -- -- -- (13,986)
--------- -------- -------- ------- --------
Income from service company business........... 5,668 -- -- -- 15,692
--------- -------- -------- ------- --------
General and administrative expenses............ (7,444) -- (5,278) 5,278(N) (61,386)
Interest expense............................... (56,756) 1,975(J)
(2,469)(K) (10,079) 145(O) (24,871)
Interest income................................ 18,244 (1) -- -- 22,501
Minority interest.............................. (1,052) 160(L) (252) 252(P) (14,159)
Equity in losses of unconsolidated
partnerships................................. (5,078) -- (71) -- 13,492
Equity in earnings of unconsolidated
subsidiaries................................. 8,413 -- -- -- --
Amortization of goodwill....................... (5,071) -- -- -- --
--------- -------- -------- ------- --------
Income (loss) from operations.................. 53,486 6,215 (2,382) 4,255 (44,094)
Income tax provision........................... -- -- -- -- 1,180
Gain on dispositions of property............... 2,783 (2,783) -- -- 6,576
--------- -------- -------- ------- --------
Net income..................................... 56,269 3,432 (2,382) 4,255 (36,338)
Income attributable to preferred unitholders... 16,320 16,094 -- -- --
--------- -------- -------- ------- --------
Income (loss) attributable to common
unitholders.................................. $ 39,949 $(12,662) $ (2,382) $ 4,255 $(36,338)
========= ======== ======== ======= ========
Basic earnings (loss) per OP Unit.............. $ 0.80
=========
Diluted earnings (loss) per OP Unit............ $ 0.79
=========
Weighted average OP Units outstanding.......... 50,420
=========
Weighted average OP Unit and equivalents
outstanding.................................. 50,544
=========
<CAPTION>
IFG IFG
MERGER REORGANIZATION
ADJUSTMENTS(F) ADJUSTMENTS(G) PRO FORMA
-------------- -------------- ---------
<S> <C> <C> <C>
Rental and other property revenues............. $ $ $
-- -- 337,307
Property operating expenses....................
-- -- (131,851)
Owned property management expense..............
-- -- (8,933)
Depreciation...................................
(1,583)(Q) -- (78,479)
-------- -------- ---------
Income from property operations................ (1,583) -- 118,044
-------- -------- ---------
Management fees and other income............... -- (56,211)(W) 28,912
Management and other expenses.................. -- 35,192(W) (14,386)
Corporate overhead allocation.................. -- -- (196)
Amortization................................... (23,895)(R) 22,641(X) (15,243)
-------- -------- ---------
Income from service company business........... (23,895) 1,622 (913)
-------- -------- ---------
General and administrative expenses............ 45,823(S) 14,375(W) (8,632)
Interest expense...............................
7,045 -- (85,010)(AA)
Interest income................................ -- 143(Y) 40,887
Minority interest.............................. 6,622(T) -- (8,429)
Equity in losses of unconsolidated
partnerships................................. (18,577)(U) -- (10,234)
Equity in earnings of unconsolidated
subsidiaries................................. -- (7,562)(Z) 851(CC)
Amortization of goodwill....................... -- -- (5,071)
-------- -------- ---------
Income (loss) from operations.................. 15,435 8,578 41,493
Income tax provision........................... (1,180)(V) -- --
Gain on dispositions of property............... (6,576) -- --
-------- -------- ---------
Net income..................................... 7,679 8,578 41,493
Income attributable to preferred unitholders... -- -- 32,414(BB)
-------- -------- ---------
Income (loss) attributable to common
unitholders.................................. $ 7,679 $ 8,578 $ 9,079(AA)
======== ======== =========
Basic earnings (loss) per OP Unit.............. $ 0.13(AA)
=========
Diluted earnings (loss) per OP Unit............ $ 0.13(AA)
=========
Weighted average OP Units outstanding.......... 68,554
=========
Weighted average OP Unit and equivalents
outstanding.................................. 69,218
=========
</TABLE>
P-20
<PAGE> 138
- ---------------
(A) Represents the Partnership's unaudited consolidated results of operations
for the nine months ended September 30, 1998.
(B) Represents adjustments to reflect the following as if they had occurred
on January 1, 1998: (i) the 1998 Stock Offerings; (ii) the 1998
Acquisitions; (iii) the Probable Purchases; (iv) the 1998 Dispositions;
and (v) the Preferred Partnership Unit Offering.
(C) Represents the unaudited historical statement of operations of Ambassador
for the four months ended April 30, 1998. Certain reclassifications have
been made to Ambassador's historical Statement of Operations to conform
to the Partnership's Statement of Operations presentation.
(D) Represents the following adjustments occurring as a result of the
Ambassador Merger: (i) the incremental depreciation of the purchase price
adjustment related to real estate; (ii) the reduction in personnel costs,
primarily severance costs, pursuant to a restructuring plan; (iii) the
reduction of interest expense resulting from the net reduction of debt;
and (iv) the elimination of the minority interest associated with
Jupiter-I, L.P.
(E) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the
IPT Merger and the spin-off of the common stock of Holdings as if these
transactions had occurred on January 1, 1998. These adjustments are
detailed, as follows:
<TABLE>
<CAPTION>
HOLDINGS
IFG AMIT SPIN- IFG
HISTORICAL(I) MERGER(II) OFF(III) AS ADJUSTED
------------- ---------- ------------- -----------
<S> <C> <C> <C> <C>
Rental and other property revenues...... $ 7,566 $ 560 $ -- $ 8,126
Property operating expenses............. (2,585) -- -- (2,585)
Depreciation............................ (904) -- -- (904)
--------- ------ --------- --------
Income from property operations......... 4,077 560 -- 4,637
--------- ------ --------- --------
Management fees and other income........ 311,475 -- (240,320) 71,155
Management and other expenses........... (252,295) -- 210,818 (41,477)
Amortization............................ (26,781) (48) 12,843 (13,986)
--------- ------ --------- --------
Income from service company business.... 32,399 (48) (16,659) 15,692
--------- ------ --------- --------
General and administrative expenses..... (66,272) (675) 5,561 (61,386)
Interest expense........................ (24,164) -- (707) (24,871)
Interest income......................... 18,817 4,193 (509) 22,501
Minority interest....................... (14,159) -- -- (14,159)
Equity in losses of unconsolidated
partnerships.......................... 12,169 1,323 13,492
--------- ------ --------- --------
Income (loss) from operations........... (37,133) 4,030 (10,991) (44,094)
Income tax provision.................... (4,772) -- 5,952 1,180
Gain on disposition of property......... 5,888 688 -- 6,576
--------- ------ --------- --------
Item income (loss)...................... $ (36,017) $4,718 $ (5,039) $(36,338)
========= ====== ========= ========
</TABLE>
----------------------
(i)
Represents the unaudited consolidated results of operations of IFG for
the nine months ended September 30, 1998.
Certain reclassifications have been made to IFG's historical statement
of operations to conform to the Partnership's statement of operations
presentation.
(ii)
Represents the historical statement of operations of AMIT, as well as
pro forma adjustments related to the AMIT Merger. The AMIT Merger
closed prior to the IFG Merger.
(iii)
Represents the distribution of two shares of Holdings common stock for
each three shares of IFG common stock to holders of IFG common stock.
(F) Represents the following adjustments occurring as a result of the IFG
Merger: (i) the incremental depreciation of the purchase price adjustment
related to consolidated real estate and investments in real estate
partnerships; (ii) the amortization of goodwill and property management
contracts
P-21
<PAGE> 139
resulting from the IFG Merger; (iii) the increase in interest expense
resulting from the net increase in debt; and (iv) the elimination of the
income tax provision.
(G) Represents adjustments related to the IFG Reorganization, whereby,
following the IFG Merger, the Partnership contributed or sold to the
combined Unconsolidated Subsidiaries certain assets and liabilities of
IFG, primarily management contracts and related working capital assets
and liabilities related to IFG's third party management operations. The
adjustments reflect the related revenues and expenses primarily related
to the management operations owned by IFG, with additional amortization
recorded related to the Partnership's new basis resulting from the
allocation of the purchase price of IFG.
(H) Represents adjustments to reflect the 1998 Acquisitions, less the 1998
Dispositions as if they had occurred on January 1, 1998. These pro forma
operating results are based on historical results of the properties,
except for depreciation, which is based on the Partnership's investment
in the properties.
These adjustments are as follows:
<TABLE>
<CAPTION>
1998 1998
ACQUISITIONS DISPOSITIONS TOTAL
------------ ------------ -------
<S> <C> <C> <C>
Rental and other property revenues......... $20,554 $(951) $19,603
Property operating expense................. (9,385) 376 (9,009)
Owned property management expense.......... (765) 37 (728)
Depreciation............................... (4,979) 93 (4,886)
</TABLE>
(I) Represents adjustments to reflect the Probable Purchases as if they had
occurred on January 1, 1998. These pro forma operating results are based
on historical results of the properties, except for depreciation, which
is based on the Partnership's investment in the properties.
(J) Represents adjustments to interest expense for the following:
<TABLE>
<S> <C>
Borrowings on the Partnership's credit facilities and
other loans and mortgages assumed in connection with
the 1998 Acquisitions.................................. $(8,698)
Repayments on the Partnership's credit facilities and
other indebtedness with proceeds from the 1998
Dispositions and the 1998 Stock
Offerings.............................................. 10,326
Repayments on AIMCO's credit facilities and other
indebtedness with proceeds from the Preferred
Partnership Unit Offering.............................. 347
-------
$ 1,975
=======
</TABLE>
(K) Represents adjustments to interest expense related to the assumption of
mortgage debt in connection with the probable purchases.
(L) Represents (i) loss of $537 related to limited partners in consolidated
partnerships acquired in connection with the 1998 Acquisitions and (ii)
income of $377 allocable to the Partnership Preferred Units.
(M) 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.
(N) Decrease results from identified historical costs of certain items which
will be eliminated or reduced as a result of the Ambassador Merger, as
follows:
<TABLE>
<S> <C>
Duplication of public company expenses.................... $ 355
Reduction in salaries and benefits........................ 2,482
Merger related costs...................................... 1,212
Other..................................................... 1,229
------
$5,278
======
</TABLE>
P-22
<PAGE> 140
The reduction in salaries and benefits is pursuant to a restructuring
plan, approved by the Company's senior management, assuming that the
Ambassador Merger had occurred on January 1, 1998 and that the
restructuring plan was completed on January 1, 1998. The restructuring
plan specifically identifies all significant actions to be taken to
complete the restructuring plan, including the reduction of personnel,
job functions, location and date of completion.
(O) Represents the decrease in interest expense of $1,480 related to the
repayment of the Ambassador revolving lines of credit upon consummation
of the Ambassador Merger, offset by an increase in interest expense of
$1,335 related to borrowings under the Partnership's line of credit.
(P) Represents elimination of minority interest in Jupiter-I, L.P. resulting
from the redemption of limited partnership interests not owned by
Ambassador in connection with the Ambassador Merger.
(Q) Represents incremental depreciation related to the consolidated real
estate assets purchased in connection with the IFG Merger and IPT Merger,
based on the Partnership's new basis resulting from the allocation of the
purchase price of IFG and IPT. Buildings and improvements are depreciated
on the straight-line method over a period of 20 years, and furniture and
fixtures are depreciated on the straight-line method over a period of 5
years.
(R) Represents incremental depreciation and amortization of the tangible and
intangible assets related to the property management business of IFG,
based on the Partnership's new basis resulting from the allocation of the
purchase price of IFG, including amortization of property management
contracts of $30,096, amortization of goodwill of $4,895, and
depreciation of furniture, fixtures, and equipment of $2,842, less IFG's
historical depreciation and amortization of $13,938. Property management
contracts are amortized using the straight-line method over a period of
three years. Furniture, fixtures, and equipment are depreciated using the
straight-line method over a period of three years. Goodwill is amortized
using the straight-line method over 20 years.
(S) Represents the elimination of merger related expenses recorded by IFG
during the nine months ended September 30, 1998. In connection with the
IFG Merger, certain IFG executives will receive one-time lump-sum
payments in connection with the termination of their employment and
option agreements. The total of these lump sum payments is estimated to
be approximately $50,000.
(T) Represents elimination of minority interest in IPT resulting from the IPT
merger.
(U) Represents amortization related to the increased basis in investment in
real estate partnerships, as a result of the allocation of the purchase
price of IFG and IPT, based on an estimated average life of 20 years, and
based on the Partnership's new basis resulting from the allocation of the
purchase price of IFG and IPT.
(V) Represents the reversal of IFG's income tax provision.
(W) Represents the historical income and expenses associated with certain
assets and liabilities of IFG that were contributed or sold to the
Unconsolidated Subsidiaries, primarily related to the management
operations of IFG.
(X) Represents the depreciation and amortization of certain management
contracts and furniture, fixtures, and equipment that were contributed or
sold to the Unconsolidated Subsidiaries, primarily related to the
management operations of IFG, based on the Partnership's new basis
resulting from the allocation of the purchase price of IFG.
(Y) Represents interest income of $2,861 earned on notes payable of $45,000
to the Partnership issued as consideration for certain assets and
liabilities sold to the Unconsolidated Subsidiaries of the Partnership,
net of the elimination of the Partnership's share of the related interest
expense of $2,718 reflected in the equity in earnings of the
Unconsolidated Subsidiaries.
(Z) Represents the Partnership's equity in earnings of the Unconsolidated
Subsidiaries.
P-23
<PAGE> 141
(AA) The following table presents the net impact to pro forma net income
applicable to holders of shares 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........................................ $ 702
=======
Net income.................................................. $40,791
=======
Net income attributable to OP Unitholders................... $ 8,377
=======
Basic loss per OP Unit...................................... $ 0.12
=======
Diluted loss per OP Unit.................................... $ 0.12
=======
</TABLE>
(BB) Represents the net income attributable to holders of the Class B
Preferred Units, the Class C Preferred Units, the Class D Preferred Units
the Class G Preferred Units, the Class H Preferred Units and the Class J
Preferred Units as if these stock offerings had occurred as of January 1,
1997.
(CC) Represents the Partnership's equity in earnings in the Unconsolidated
Subsidiaries of $(1,867) plus the elimination of intercompany interest of
$2,718. The combined Pro Forma Statement of Operations of the
Unconsolidated Subsidiaries for the nine months ended September 30, 1998
is presented below, which represents the effects of the Ambassador
Merger, the IFG Merger and the IFG Reorganization as if these
transactions had occurred as of January 1, 1997.
P-24
<PAGE> 142
UNCONSOLIDATED SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
IFG
HISTORICAL(I) REORGANIZATION(II) PRO FORMA
------------- ------------------ ---------
<S> <C> <C> <C>
Rental and other property revenues................... $ 9,910 $ -- $ 9,910
Property operating expense........................... (5,139) -- (5,139)
Owned property management expense.................... (345) -- (345)
Depreciation expense................................. (1,026) -- (1,026)
-------- -------- --------
Income from property operations...................... 3,400 -- 3,400
-------- -------- --------
Management fees and other income..................... 57,665 56,211(iii) 113,876
Management and other expenses........................ (36,221) (35,192)(iii) (71,413)
Amortization......................................... (2,111) (22,641)(iv) (24,752)
-------- -------- --------
Income from service company.......................... 19,333 (1,622) 17,711
General and administrative expense................... -- (14,375)(iii) (14,375)
Interest expense..................................... (6,931) (2,861)(v) (9,792)
Interest income...................................... 617 -- 617
Minority interest.................................... (526) -- (526)
-------- -------- --------
Income (loss) from operations........................ 15,893 (18,858) (2,965)
Income tax provision................................. (7,037) 8,037(vi) 1,000
-------- -------- --------
Net income (loss).................................... $ 8,856 $(10,821) $ (1,965)
======== ======== ========
Income (loss) attributable to preferred
stockholders....................................... $ 8,413 $(10,280) $ (1,867)
======== ======== ========
Income (loss) attributable to common stockholders.... $ 443 $ (541) $ (98)
======== ======== ========
</TABLE>
- ---------------
(i) Represents the Unconsolidated Subsidiaries historical consolidated results
of operations.
(ii) Represents adjustments related to the IFG Reorganization, whereby,
following the IFG Merger, the Partnership contributed or sold to the
combined Unconsolidated Subsidiaries certain assets and liabilities of IFG,
primarily related to the management operations owned by IFG. The
adjustments reflect the related revenues and expenses primarily related to
the management operations owned by IFG, with additional amortization
recorded related to the Partnership's new basis resulting from the
allocation of the purchase price of IFG.
(iii)Represents the historical income and expenses associated with certain
assets and liabilities of IFG that were contributed or sold to the
Unconsolidated Subsidiaries, primarily related to the management operations
of IFG.
(iv) Represents the depreciation and amortization of certain management
contracts and furniture, fixtures, and equipment contributed or sold to the
Unconsolidated Subsidiaries, primarily related to the management operations
of IFG, based on the Partnership's new basis resulting from the allocation
of the purchase price of IFG.
(v) Represents adjustment for interest expense related to a note payable to the
Partnership.
(vi) Represents the estimated Federal and state tax provisions, which are
calculated on the pro forma operating results of the Unconsolidated
Subsidiaries, excluding amortization of goodwill, which is not deductible
for tax purposes.
P-25
<PAGE> 143
AIMCO PROPERTIES, L.P.
PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (INSIGNIA MERGER)
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMPLETED
TRANSACTIONS AMBASSADOR IFG
AND PROBABLE NHP AMBASSADOR PURCHASE PRICE AS
HISTORICAL(A) PURCHASES(B) TRANSACTIONS(C) HISTORICAL(D) ADJUSTMENTS(E) ADJUSTED(F)
------------- ------------ --------------- ------------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net Income (loss)................ $ 32,697 $ 25,214 $ (8,681) $ 3,437 $ 1,879 $ 4,744
Adjustments to reconcile net
income (loss) to net cash
provided by (used in) operating
activities:
Depreciation and
amortization.................. 43,520 28,817 7,354 20,372 5,997 17,248
Gain on investments............ -- -- (12) -- -- --
(Gain) loss on disposition of
properties.................... (2,720) 2,720 (3,882) -- -- (80)
Minority interests............. (1,008) (458) (16) 851 (705) 12,871
Equity in earnings of
unconsolidated partnerships... 1,798 122 8,542 (405) -- (12,515)
Equity in earnings of
unconsolidated subsidiaries... (4,636) -- (5,790) -- -- --
Extraordinary (gain) loss on
early extinguishment of
debt.......................... 269 (269) -- -- -- (5,366)
Changes in operating assets and
operating liabilities......... 3,112 -- 5,314 (3,523) -- (4,384)
--------- --------- --------- --------- -------- --------
Total adjustments........... 40,335 30,932 11,510 17,295 5,292 7,774
--------- --------- --------- --------- -------- --------
Net cash provided by (used
in) operating activities... 73,032 56,146 2,829 20,732 7,171 12,518
Net cash used in
discontinued operations.... -- -- (7,999) -- -- --
--------- --------- --------- --------- -------- --------
Net cash provided by (used
in) continuing
operations................. 73,032 56,146 (5,170) 20,732 7,171 12,518
--------- --------- --------- --------- -------- --------
CASH FLOWS FROM INVESTING
ACTIVITIES
Proceeds from sale of real
estate......................... 21,792 19,627(I) -- -- -- --
Purchase of real estate.......... (376,315) (220,995)(J) (4,114) (24,179) -- --
Additions to real estate,
investments and property held
for sale....................... (26,966) (5,217)(K) (522) (19,033) -- (4,154)
Proceeds from sale of property
held for sale.................. 303 -- -- -- -- --
Purchase of general and limited
partnership interests.......... (199,146) -- (1,208) -- -- (76,104)
Purchase of management
contracts...................... -- -- (11,686) -- -- (36,868)
Purchase of/additions to notes
receivable..................... (59,787) -- (4,236) -- -- (17,647)
Proceeds from repayments of notes
receivable..................... -- -- 214 1,000 -- 8,838
Distributions from investments in
real estate partnerships and
unconsolidated subsidiaries.... 45,791 -- 3,097 3,183 -- 42,615
Contribution to unconsolidated
subsidiaries................... (42,879) -- -- -- -- --
Proceeds from sale of
securities..................... -- -- 642 -- -- --
Purchase of investments held for
sale........................... -- -- (73) -- -- --
Purchase of NHP mortgage loans... (60,575) -- -- -- -- --
Purchase of Ambassador common
stock.......................... (19,881) -- -- -- -- --
--------- --------- --------- --------- -------- --------
Net cash used in investing
activities................. (717,663) (206,585) (17,886) (39,029) -- (83,320)
--------- --------- --------- --------- -------- --------
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from secured notes
payable borrowings............. 225,436 122,568(L) 145,519 156,746 -- 111,001
Principal repayments on secured
notes payable.................. (12,512) -- (141,032) (141,676) -- (12,697)
Proceeds from secured short-term
financing...................... 19,050 -- -- -- -- --
Repayments on secured short-term
financing...................... -- (259,027)(M) (434) -- -- --
Principal repayments on unsecured
short-term notes payable....... (79) (50,800)(M) -- -- -- --
Proceeds (payoff) from unsecured
short-term financing........... (12,500) -- -- -- -- --
Principal repayments on secured
tax-exempt bond financing...... (1,487) -- -- -- -- --
Net borrowings (paydowns) on the
Company's revolving credit
facilities..................... (162,008) -- -- -- -- --
Payment of loan costs, net of
proceeds from interest rate
hedge.......................... (6,387) -- (245) (8,095) -- (2,305)
Proceeds from issuance of common
and preferred stock, net....... 643,224 357,389(N) 6,286 28,946 -- 62,420
Proceeds from exercises of
employee stock options and
warrants....................... 871 -- -- 3,195 -- 7,487
Repurchase of common stock....... -- -- -- -- -- (3,283)
Principal repayments received on
notes due from Officers........ 25,957 -- -- 1,323 -- --
Investments made by minority
interests...................... -- -- -- -- -- 249
Receipt of contributions from
minority interests............. -- 37,345(O) -- -- -- --
Payments of distribution to
minority interests............. -- (2,713)(P) -- -- -- --
Payment of distributions......... (44,660) (19,396)(Q) (11,503)(T) (15,717) (12,173)(U) (2,695)
Payment of distributions to
limited partners............... -- (5,193)(R) -- -- (15)(U) --
Payment of preferred unit
distributions.................. (846) (39,859)(S) -- (2,279) -- --
Payment of distributions to
minority interests............. (5,510) -- -- (3,700) -- (12,578)
Net transactions with
Insignia/ESG................... -- -- -- -- -- (57,612)
--------- --------- --------- --------- -------- --------
Net cash provided by (used
in) financing activities... 668,549 140,314 (1,409) 18,743 (12,188) 89,987
--------- --------- --------- --------- -------- --------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS............. 23,918 (10,125) (24,465) 446 (5,017) 19,185
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD.............. 13,170 -- 36,277 4,002 -- 64,447
--------- --------- --------- --------- -------- --------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD........................ $ 37,088 $ (10,125) $ 11,812 $ 4,448 $ (5,017) $ 83,632
========= ========= ========= ========= ======== ========
<CAPTION>
IFG IFG
MERGER REORGANIZATION PRO
ADJUSTMENTS(G) ADJUSTMENTS(H) FORMA
-------------- -------------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net Income (loss)................ $(80,023) $ 6,882 $ (13,851)
Adjustments to reconcile net
income (loss) to net cash
provided by (used in) operating
activities:
Depreciation and
amortization.................. 35,049 (30,188) 128,169
Gain on investments............ -- -- (12)
(Gain) loss on disposition of
properties.................... 80 -- (3,882)
Minority interests............. (1,552) -- 9,983
Equity in earnings of
unconsolidated partnerships... 29,995 -- 27,537
Equity in earnings of
unconsolidated subsidiaries... -- 4,578 (5,848)
Extraordinary (gain) loss on
early extinguishment of
debt.......................... 5,366 --
Changes in operating assets and
operating liabilities......... -- -- 519
-------- -------- -----------
Total adjustments........... 68,938 (25,610) 156,466
-------- -------- -----------
Net cash provided by (used
in) operating activities... (11,085) (18,728) 142,615
Net cash used in
discontinued operations.... -- -- (7,999)
-------- -------- -----------
Net cash provided by (used
in) continuing
operations................. (11,085) (18,728) 134,616
-------- -------- -----------
CASH FLOWS FROM INVESTING
ACTIVITIES
Proceeds from sale of real
estate......................... -- -- 41,419
Purchase of real estate.......... -- -- (625,603)
Additions to real estate,
investments and property held
for sale....................... -- -- (55,892)
Proceeds from sale of property
held for sale.................. -- -- 303
Purchase of general and limited
partnership interests.......... -- -- (276,458)
Purchase of management
contracts...................... -- -- (48,554)
Purchase of/additions to notes
receivable..................... -- -- (81,670)
Proceeds from repayments of notes
receivable..................... -- -- 10,052
Distributions from investments in
real estate partnerships and
unconsolidated subsidiaries.... -- -- 94,686
Contribution to unconsolidated
subsidiaries................... -- -- (42,879)
Proceeds from sale of
securities..................... -- -- 642
Purchase of investments held for
sale........................... -- -- (73)
Purchase of NHP mortgage loans... -- -- (60,575)
Purchase of Ambassador common
stock.......................... -- -- (19,881)
-------- -------- -----------
Net cash used in investing
activities................. -- -- (1,064,483)
-------- -------- -----------
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from secured notes
payable borrowings............. -- -- 761,270
Principal repayments on secured
notes payable.................. -- -- (307,917)
Proceeds from secured short-term
financing...................... -- -- 19,050
Repayments on secured short-term
financing...................... -- -- (259,461)
Principal repayments on unsecured
short-term notes payable....... -- -- (50,879)
Proceeds (payoff) from unsecured
short-term financing........... -- -- (12,500)
Principal repayments on secured
tax-exempt bond financing...... -- -- (1,487)
Net borrowings (paydowns) on the
Company's revolving credit
facilities..................... -- -- (162,008)
Payment of loan costs, net of
proceeds from interest rate
hedge.......................... -- -- (17,032)
Proceeds from issuance of common
and preferred stock, net....... -- -- 1,098,265
Proceeds from exercises of
employee stock options and
warrants....................... -- -- 11,553
Repurchase of common stock....... -- -- (3,283)
Principal repayments received on
notes due from Officers........ -- -- 27,280
Investments made by minority
interests...................... -- -- 249
Receipt of contributions from
minority interests............. -- -- 37,345
Payments of distribution to
minority interests............. -- -- (2,713)
Payment of distributions......... (24,513)(V) -- (130,657)
Payment of distributions to
limited partners............... -- -- (5,208)
Payment of preferred unit
distributions.................. -- -- (42,984)
Payment of distributions to
minority interests............. -- -- (21,788)
Net transactions with
Insignia/ESG................... -- -- (57,612)
-------- -------- -----------
Net cash provided by (used
in) financing activities... (24,513) -- 879,483
-------- -------- -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS............. (35,598) (18,728) (50,384)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD.............. -- -- 117,896
-------- -------- -----------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD........................ $(35,598) $(18,728) $ 67,512
======== ======== ===========
</TABLE>
P-26
<PAGE> 144
- ---------------
(A) Represents the Partnership's audited consolidated statement of cash flows
for the year ended December 31, 1997.
(B) Represents adjustments to reflect the following as if they had occurred on
January 1, 1997; (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings;
(iii) the 1997 Dispositions; (iv) the 1998 Stock Offerings; (v) the 1998
Acquisitions; (vi) the Probably Purchases; (vii) the 1998 Dispositions; and
(viii) the Preferred Partnership Unit Offering.
(C) Represents adjustments to reflect the purchase of the NHP Real Estate
Companies, the NHP Merger, and the NHP Reorganization, as if the
transactions had taken place on January 1, 1997. These adjustments are
detailed as follows:
<TABLE>
<CAPTION>
NHP
REAL ESTATE NHP NHP NHP NHP
PURCHASE(I) HISTORICAL(II) ADJUSTMENTS(III) REORGANIZATION(IV) TRANSACTIONS
----------- -------------- ---------------- ------------------ ------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (loss)................. $ (7,266) $ 4,350 $(2,222) $ (3,543) $ (8,681)
Adjustments to reconcile net
income (loss) to net cash
provided by (used in) operating
activities:
Depreciation and amortization... 4,058 9,134 5,125 (10,963) 7,354
Gain on investments............. (12) -- -- -- (12)
(Gain) loss on disposition of
properties.................... (3,882) -- -- -- (3,882)
Minority interests.............. (16) -- -- -- (16)
Equity in earnings of
unconsolidated partnerships... 3,905 -- 4,631 6 8,542
Equity in earnings of
unconsolidated subsidiaries... -- -- 4,636 (10,426) (5,790)
Changes in operating assets and
operating liabilities......... (1,036) 6,350 -- -- 5,314
-------- -------- ------- -------- ---------
Total adjustments........... 3,017 15,484 14,392 (21,383) 11,510
-------- -------- ------- -------- ---------
Net cash provided by (used
in) operating
activities................ (4,249) 19,834 12,170 (24,926) 2,829
Net cash used in
discontinued operations... -- (7,999) -- -- (7,999)
-------- -------- ------- -------- ---------
Net cash provided by (used
in) continuing
operations................ (4,249) 11,835 12,170 (24,926) (5,170)
-------- -------- ------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of real estate........... -- (4,114) -- -- (4,114)
Additions to real estate,
investments and property held
for sale........................ (522) -- -- -- (522)
Purchase of general and limited
partnership interests........... (1,208) -- -- -- (1,208)
Purchase of management
contracts....................... -- (11,686) -- -- (11,686)
Purchase of/additions to notes
receivable...................... -- (4,236) -- -- (4,236)
Proceeds from repayments of notes
receivable...................... 214 -- -- -- 214
Distributions from investments in
real estate partnerships and
unconsolidated subsidiaries..... 3,097 -- -- -- 3,097
Proceeds from sale of
securities...................... 642 -- -- -- 642
Purchase of investments held for
sale............................ (73) -- -- -- (73)
-------- -------- ------- -------- ---------
Net cash provided by (used
in) investing
activities................ 2,150 (20,036) -- -- (17,886)
-------- -------- ------- -------- ---------
</TABLE>
P-27
<PAGE> 145
<TABLE>
<CAPTION>
NHP
REAL ESTATE NHP NHP NHP NHP
PURCHASE(I) HISTORICAL(II) ADJUSTMENTS(III) REORGANIZATION(IV) TRANSACTIONS
----------- -------------- ---------------- ------------------ ------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from secured notes
payable borrowings.............. $ 74,019 $ 71,500 $ -- $ -- $ 145,519
Principal repayments on secured
notes payable................... (71,256) (69,776) -- -- (141,032)
Repayments on secured short-term
financing....................... (434) -- -- -- (434)
Payment of loan costs, net of
proceeds from interest rate
hedge........................... -- (245) -- -- (245)
Proceeds from issuances of common
and preferred stock, net........ -- 6,286 -- -- 6,286
Payment of distributions.......... (2,000) -- (9,503) -- (11,503)
-------- -------- ------- -------- ---------
Net cash provided by (used
in) financing
activities................ 329 7,765 (9,503) -- (1,409)
-------- -------- ------- -------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS.................. (1,770) (436) 2,667 (24,926) (24,465)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD............... 25,795 10,482 -- -- 36,277
-------- -------- ------- -------- ---------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD............................ $ 24,025 $ 10,046 $ 2,667 $(24,926) $ 11,812
======== ======== ======= ======== =========
</TABLE>
- ---------------
(i)Represents the adjustment to record cash flow activity from January 1,
1997 to the date of acquisition, as if the acquisition of the NHP Real
Estate Companies had occurred on January 1, 1997. In addition,
represents adjustments to record additional deprecation and
amortization related to the increased basis in the assets of the NHP
Real Estate Companies as a result of the allocation of the purchase
price of the NHP Real Estate Companies and additional interest expense
incurred in connection with borrowings incurred by the Partnership to
consummate the NHP Real Estate Acquisition.
(ii)
Represents the unaudited consolidated statement of cash flows of NHP
for the period from January 1, 1997 through December 8, 1997 (date of
the NHP Merger).
(iii)
Represents the following adjustments occurring as a result of the NHP
Merger: (i) the reduction in personnel costs, primarily severance
costs, pursuant to a restructuring plan; (ii) the incremental
depreciation of the purchase price adjustment related to real estate;
(iii) the incremental amortization of the purchase price adjustment
related to management contracts, furniture, fixtures and equipment, and
goodwill; (iv) the reversal of equity in earnings of NHP during the
pre-merger period when the Partnership held a 47.62% interest in NHP;
and (v) the amortization of the increased basis in investments in real
estate partnerships, based on the purchase price adjustment related to
real estate and an estimated average life of 20 years.
(iv)
Represents adjustments related to the NHP Reorganization, whereby the
Partnership contributed or sold to the Unconsolidated Subsidiaries and
the Unconsolidated Partnership; (i) certain assets and liabilities of
NHP, primarily related to the management operations and other
businesses owned by NHP and (ii) 12 real estate properties containing
2,905 apartment units. The adjustments represent (i) the related cash
flow activity primarily related to the management operations of such
real estate partnerships contributed, with additional depreciation and
amortization recorded related to the Partnership's new basis resulting
from the allocation of the combined purchase price of NHP and the NHP
Real Estate Companies.
(D) Represents the audited historical statement of cash flows of Ambassador for
the year ended December 31, 1997. Certain reclassifications have been made
to Ambassador's historical statement of cash flows to conform to the
Partnership's statement of cash flows presentation. The Ambassador
P-28
<PAGE> 146
historical statement of cash flows excludes an extraordinary loss of $1,384
and a loss on sale of an interest rate cap of $509.
(E) Represents the following adjustments occurring as a result of the
Ambassador Merger: (i) the incremental depreciation of the purchase price
adjustment related to real estate; (ii) the reduction in personnel costs,
primarily severance costs, pursuant to a restructuring plan; (iii) the
reduction of interest expense, resulting from the net reduction of debt;
and (iv) the elimination of the minority interest associated with
Jupiter-I, L.P.
(F) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT
Merger, and the spin-off of New Insignia as if those transaction had
occurred on January 1, 1997. These adjustments are detailed as follows:
<TABLE>
<CAPTION>
NEW
IFG AMIT INSIGNIA IFG
HISTORICAL(I) MERGER(II) SPIN-OFF(III) AS ADJUSTED
------------- ---------- ------------- -----------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)..................... $ 10,233 $ 7,566 $(13,055) $ 4,744
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Depreciation and amortization...... 32,675 63 (15,490) 17,248
Gain on disposition of property.... -- (80) -- (80)
Minority interests................. 12,448 382 41 12,871
Equity in earnings of
unconsolidated partnerships...... (10,027) (2,639) 151 (12,515)
Extraordinary gain on early
extinguishment of debt........... (5,366) -- -- (5,366)
Changes in operating assets and
liabilities...................... -- (2,405) (1,979) (4,384)
--------- -------- -------- --------
Total adjustments............. 29,730 (4,679) (17,277) 7,774
--------- -------- -------- --------
Net cash provided by (used in) operating
activities............................ 39,963 2,887 (30,332) 12,518
--------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to real estate, investments
and property held for sale......... (7,695) 665 2,876 (4,154)
Purchase of general and limited
partnership interests.............. (93,118) -- 17,014 (76,104)
Purchase of management contracts...... (99,540) -- 62,672 (36,868)
Purchase of/additions to notes
receivable......................... (9,172) (14,251) 5,776 (17,647)
Proceeds from repayments of notes
receivable......................... 4,523 7,552 (3,237) 8,838
Distributions from investments in real
estate partnerships and
unconsolidated subsidiaries........ 44,823 -- (2,208) 42,615
--------- -------- -------- --------
Net cash provided by (used in)
investing activities........ (160,179) (6,034) 82,893 (83,320)
--------- -------- -------- --------
</TABLE>
P-29
<PAGE> 147
<TABLE>
<CAPTION>
NEW
IFG AMIT INSIGNIA IFG
HISTORICAL(I) MERGER(II) SPIN-OFF(III) AS ADJUSTED
------------- ---------- ------------- -----------
<S> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from secured notes payable
borrowings......................... $ 118,141 $ -- $ (7,140) $111,001
Principal repayments on secured notes
payable............................ (15,682) -- 2,985 (12,697)
Payment of loan costs, net of proceeds
from interest rate hedge........... (2,305) -- -- (2,305)
Proceeds from issuance of common and
preferred stock, net............... 62,420 -- -- 62,420
Proceeds from exercises of employee
stock options and warrants......... 7,487 -- -- 7,487
Repurchase of common stock............ (3,283) -- -- (3,283)
Investment made by minority
interests.......................... 249 -- -- 249
Payment of distributions.............. -- (2,695) -- (2,695)
Payment of distributions to minority
interests.......................... (12,578) -- -- (12,578)
Net transactions with Insignia/ESG.... -- -- (57,612) (57,612)
--------- -------- -------- --------
Net cash provided by (used in)
financing activities........ 154,449 (2,695) (61,767) 89,987
--------- -------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS........................... 34,233 (5,842) (9,206) 19,185
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD............................. 54,614 9,789 44 64,447
--------- -------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD................................ $ 88,847 $ 3,947 $ (9,162) $ 83,632
========= ======== ======== ========
</TABLE>
- ---------------
(i)Represents the audited consolidated statement of cash flows of IFG for
the year ended December 31, 1997, as reported in IFG's Annual Report on
Form 10-K. Certain reclassifications have been made to IFG's historical
statement of cash flows to conform to the Partnership's statement of
cash flows presentation.
(ii)
Represents the historical statement of cash flows of AMIT, as well as
pro forma adjustments related to the AMIT Merger. The AMIT merger
closed prior to the IFG Merger.
(iii)
Represents the distribution of two shares of New Insignia common stock
for each three shares of IFG common stock to holders of IFG common
stock.
(G) Represents the following adjustments occurring as a result of the IFG
Merger and the IPT Merger; (i) the incremental depreciation of the purchase
price adjustment related to consolidated real estate and investments in
real estate partnerships; (ii) the amortization of goodwill and property
management contracts resulting from the IFG Merger; (iii) the increase in
interest expense resulting from the net increase in debt; and (iv) the
elimination of the income tax provision.
(H) Represents adjustments related to the IFG Reorganization, whereby,
following the IFG Merger, the Partnership contributed or sold to the
Unconsolidated Subsidiaries certain assets and liabilities of IFG,
primarily management contracts and related working capital assets and
liabilities related to IFG's third party management operations. The
adjustments reflect the related cash flow activity primarily related to the
management operations owned by IFG, with additional amortization recorded
related to the Partnership's new basis resulting from the allocation of the
purchase price of IFG.
(I) Represents proceeds from the sale of the 1998 Dispositions, as if these
dispositions occurred on January 1, 1997.
P-30
<PAGE> 148
(J) Represents the use of cash to purchase the 1998 Acquisitions and the
Probable Purchases, as if these acquisitions occurred on January 1, 1997.
(K) Represents cash payments for capital improvements of $300 per unit on the
1997 Acquisitions, the 1998 Acquisitions and the Probable Purchases.
(L) Represents notes payable assumed in connection with the 1998 Acquisitions
and the Probable Purchases, assuming these transactions occurred January 1,
1997.
(M) Represents net principal repayments assuming the 1998 Acquisitions, the
1998 Dispositions, the Probable Purchases, the 1998 Stock Offerings and the
Preferred Partnership Unit Offering occurred January 1, 1997.
(N) Represents cash proceeds from the 1998 Stock Offerings, as if these
offerings occurred on January 1, 1997.
(O) Represents contributions from minority interests assuming the Preferred
Partnership Unit Offering occurred January 1, 1997.
(P) Represents pro forma distributions on the units issued in the Preferred
Partnership Unit Offering as if these units had been issued January 1,
1997.
(Q) Represents distributions paid on the 1997 Stock Offerings as if these
occurred on January 1, 1997.
(R) Represents distributions paid to limited partners on OP Units issued in
connection with the 1997 Acquisitions, the 1998 Acquisitions and the
Probable Purchases, as if the issuance of the OP Units occurred on January
1, 1997.
(S) Represents preferred unit distributions paid on the Class B Preferred
Stock, the Class C Preferred Stock and the 1998 Stock Offerings as if these
occurred on January 1, 1997.
(T) Represents historical distributions of $2,000 and pro forma distributions
on the shares issued in the NHP Merger as if these shares had been issued
on January 1, 1997.
(U) Represents pro forma distributions and distributions to limited partners on
the shares issued in the Ambassador Merger as if these shares had been
issued on January 1, 1997.
(V) Represents pro forma distributions on the shares issued in the IFG Merger
and IPT Merger as if these shares had been issued on January 1, 1997.
P-31
<PAGE> 149
AIMCO PROPERTIES, L.P.
PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (INSIGNIA MERGER)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMPLETED
TRANSACTIONS
AND AMBASSADOR
PROBABLE AMBASSADOR PURCHASE PRICE IFG AS IFG MERGER
HISTORICAL(A) PURCHASE(B) HISTORICAL(C) ADJUSTMENTS(D) ADJUSTED(E) ADJUSTMENTS(F)
------------- ------------ ------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net Income (loss)................. $ 56,269 $ 3,432 $ (2,382) $ 4,255 $ (36,338) $ 7,679
Adjustments to reconcile net
income (loss) to net cash
provided by (used in) operating
activities:
Depreciation and amortization... 67,344 7,512 7,520 1,420 14,890 25,478
(Gain) loss on disposition of
properties..................... (2,783) 2,783 -- -- (6,576) 6,576
Minority interests.............. 1,052 (160) 252 (252) 14,159 (6,622)
Equity in earnings of
unconsolidated partnerships.... 5,078 -- 71 -- (13,492) 18,577
Equity in earnings of
unconsolidated subsidiaries.... (8,413) -- -- -- -- --
Non-cash compensation........... -- -- -- -- 796 --
Changes in operating assets and
operating liabilities.......... (67,722) -- 5,948 -- (7,775) --
--------- -------- -------- ------- --------- --------
Total adjustments............ (5,444) 10,135 13,791 1,168 2,002 44,009
--------- -------- -------- ------- --------- --------
Net cash provided by (used
in) operating activities... 50,825 13,567 11,409 5,423 (34,336) 51,688
--------- -------- -------- ------- --------- --------
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchase of real estate........... (63,839) 63,839(H) -- -- 27,122 --
Additions to real estate.......... (47,878) (1,198)(I) (17,759) -- 9,309 --
Proceeds from sale of property and
investments held for sale....... 19,627 (19,627)(J) -- -- (35) --
Additions to property held for
sale............................ (1,986) -- -- -- -- --
Purchase of general and limited
partnership interests........... (27,016) -- -- -- 17,420 --
Purchase of/additions to notes
receivable...................... (72,445) -- -- -- (27,589) --
Proceeds from repayments/sale of
notes receivable................ 21,562 -- -- -- 21,185 --
Distributions from investments in
real estate partnerships and
unconsolidated subsidiaries..... 513 -- 1,063 -- 22,053 --
Payment of trust based preferred
dividends....................... -- -- -- -- (7,415) --
Cash received in connection with
Ambassador Merger and AMIT
Merger.......................... 4,492 -- -- -- 13,423 --
Contribution to unconsolidated
subsidiaries.................... (13,032) -- -- -- -- --
Purchase of investments held for
sale............................ (4,935) -- -- -- -- --
Redemption of OP Units............ (516) -- -- -- -- --
Merger costs...................... -- -- -- -- (1,402) --
--------- -------- -------- ------- --------- --------
Net cash provided by (used
in) investing activities... (185,453) 43,014 (16,696) -- 74,071 --
--------- -------- -------- ------- --------- --------
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from secured notes
payable borrowings.............. 77,489 -- 37,162 -- 177,234 --
Principal repayments on secured
notes payable................... (56,262) -- -- -- 4,239 --
Principal advances on secured
tax-exempt bond financing....... -- -- 21,784 -- -- --
Principal repayments on secured
tax-exempt bond financing....... (1,436) -- -- -- -- --
Net borrowings/repayments on
secured short-term financing.... (30,693) 209,027(K) (43,002) -- -- --
Net borrowings (paydowns) on the
revolving credit facilities..... -- -- 2,513 -- -- --
Principal repayments on unsecured
short-term notes payable........ -- -- -- -- 2,644 --
Payment of loan costs, net of
proceeds from interest rate
hedge........................... (5,727) -- -- -- (83) --
Proceeds from issuance of common
stock and preferred stock,
net............................. 253,239 (253,239)(L) -- -- -- --
Repurchase of common stock........ (10,972) -- -- -- -- --
Proceeds from exercises of
employee stock options and
warrants........................ -- -- 9,761 -- 6,533 --
Principal repayments received on
notes due from Officers......... 8,084 -- -- -- -- --
Payments of distributions to
minority interests.............. -- (2,034)(M) -- -- -- --
Payment of distributions.......... (73,322) -- -- (3,701)(P) (8,606) (22,360)(Q)
Payment of distributions to
limited partners................ (10,251) (1,919)(N) -- (5)(P) (494) --
Payment of preferred unit
distributions................... (10,916) (16,094)(O) -- -- -- --
Proceeds from issuance of High
Performance Units............... 1,988 -- -- -- -- --
Net transactions with
Insignia/ESG.................... -- -- -- -- (241,003) --
--------- -------- -------- ------- --------- --------
Net cash provided by (used
in) financing activities... 141,221 (64,259) 28,218 (3,706) (59,536) (22,360)
--------- -------- -------- ------- --------- --------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS.................. 6,593 (7,678) 22,931 1,717 (19,801) 29,328
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD............... 37,088 (10,125) 4,448 (5,017) 83,632 (35,598)
--------- -------- -------- ------- --------- --------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD............................ $ 43,681 $(17,803) $ 27,379 $(3,300) $ 63,831 $ (6,270)
========= ======== ======== ======= ========= ========
<CAPTION>
IFG
REORGANIZATION PRO
ADJUSTMENTS(G) FORMA
-------------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net Income (loss)................. $ 8,578 $ 41,493
Adjustments to reconcile net
income (loss) to net cash
provided by (used in) operating
activities:
Depreciation and amortization... (22,641) 101,523
(Gain) loss on disposition of
properties..................... -- --
Minority interests.............. -- 8,429
Equity in earnings of
unconsolidated partnerships.... -- 10,234
Equity in earnings of
unconsolidated subsidiaries.... 7,562 (851)
Non-cash compensation........... -- 796
Changes in operating assets and
operating liabilities.......... -- (69,549)
-------- ---------
Total adjustments............ (15,079) 50,582
-------- ---------
Net cash provided by (used
in) operating activities... (6,501) 92,075
-------- ---------
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchase of real estate........... -- 27,122
Additions to real estate.......... -- (57,526)
Proceeds from sale of property and
investments held for sale....... -- (35)
Additions to property held for
sale............................ -- (1,986)
Purchase of general and limited
partnership interests........... -- (9,596)
Purchase of/additions to notes
receivable...................... -- (100,034)
Proceeds from repayments/sale of
notes receivable................ -- 42,747
Distributions from investments in
real estate partnerships and
unconsolidated subsidiaries..... -- 23,629
Payment of trust based preferred
dividends....................... -- (7,415)
Cash received in connection with
Ambassador Merger and AMIT
Merger.......................... -- 17,915
Contribution to unconsolidated
subsidiaries.................... -- (13,032)
Purchase of investments held for
sale............................ -- (4,935)
Redemption of OP Units............ -- (516)
Merger costs...................... -- (1,402)
-------- ---------
Net cash provided by (used
in) investing activities... -- (85,064)
-------- ---------
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from secured notes
payable borrowings.............. -- 291,885
Principal repayments on secured
notes payable................... -- (52,023)
Principal advances on secured
tax-exempt bond financing....... -- 21,784
Principal repayments on secured
tax-exempt bond financing....... -- (1,436)
Net borrowings/repayments on
secured short-term financing.... -- 135,332
Net borrowings (paydowns) on the
revolving credit facilities..... -- 2,513
Principal repayments on unsecured
short-term notes payable........ -- 2,644
Payment of loan costs, net of
proceeds from interest rate
hedge........................... -- (5,810)
Proceeds from issuance of common
stock and preferred stock,
net............................. -- --
Repurchase of common stock........ -- (10,972)
Proceeds from exercises of
employee stock options and
warrants........................ -- 16,294
Principal repayments received on
notes due from Officers......... -- 8,084
Payments of distributions to
minority interests.............. -- (2,034)
Payment of distributions.......... -- (107,989)
Payment of distributions to
limited partners................ -- (12,669)
Payment of preferred unit
distributions................... -- (27,010)
Proceeds from issuance of High
Performance Units............... -- 1,988
Net transactions with
Insignia/ESG.................... -- (241,003)
-------- ---------
Net cash provided by (used
in) financing activities... -- 19,578
-------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS.................. (6,501) 26,589
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD............... (18,728) 55,700
-------- ---------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD............................ $(25,229) $ 82,289
======== =========
</TABLE>
P-32
<PAGE> 150
- ---------------
(A) Represents the Partnership's unaudited consolidated statement of cash flows
for the nine months ended September 30, 1998.
(B) Represents adjustments to reflect the following as if they had occurred on
January 1, 1997; (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions;
(iii) the Probably Purchases; (iv) the 1998 Dispositions and (v) the
Preferred Partnership Unit Offering.
(C) Represents the unaudited historical statement of cash flows of Ambassador
for the four months ended April 20, 1998. Certain reclassifications have
been made to Ambassador's historical statement of cash flows to conform to
the Partnership's statement of cash flows presentation.
(D) Represents the following adjustments occurring as a result of the
Ambassador Merger: (i) the incremental depreciation of the purchase price
adjustment related to real estate; (ii) the reduction in personnel costs,
primarily severance costs, pursuant to a restructuring plan; (iii) the
reduction of interest expense, resulting from the net reduction of debt;
and (iv) the elimination of the minority interest associated with
Jupiter-I, L.P.
(E) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT
Merger, and the spin-off of New Insignia as if those transaction had
occurred on January 1, 1997. These adjustments are detailed as follows:
<TABLE>
<CAPTION>
NEW
IFG AMIT INSIGNIA IFG
HISTORICAL(I) MERGER(II) SPIN-OFF(III) AS ADJUSTED
------------- ---------- ------------- -----------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)......................................... $ (36,017) $ 4,718 $ (5,039) $(36,338)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization........................... 27,685 48 (12,843) 14,890
Gain on disposition of property......................... (5,888) (688) -- (6,576)
Minority interests...................................... 14,159 -- -- 14,159
Equity in earnings of unconsolidated partnerships....... (12,169) -- (1,323) (13,492)
Non-cash compensation................................... 796 -- -- 796
Changes in operating assets and liabilities............. (18,853) (1,499) 12,577 (7,775)
--------- -------- --------- --------
Total adjustments................................... 5,730 (2,139) (1,589) 2,002
--------- -------- --------- --------
Net cash provided by (used in) operating
activities........................................ (30,287) 2,579 (6,628) (34,336)
--------- -------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of real estate................................... (3,804) -- 30,926 27,122
Additions to real estate.................................. (2,252) (25) 11,586 9,309
Proceeds from sales of property and investments held for
sale.................................................... -- 161 (196) (35)
Purchase of general and limited partnership interests..... (44,270) -- 61,690 17,420
Purchases of / additions to notes receivable.............. (17,107) (15,407) 4,925 (27,589)
Proceeds from repayments/sale of notes receivable......... 151 23,672 (2,638) 21,185
Distributions from investments in real estate partnerships
and unconsolidated subsidiaries......................... 21,360 -- 693 22,053
Payment of trust based preferred dividends................ (7,415) -- -- (7,415)
Cash received in connection with AMIT Merger.............. 13,423 -- -- 13,423
Merger costs.............................................. (1,402) -- -- (1,402)
--------- -------- --------- --------
Net cash provided by (used in) investing
activities........................................ (41,316) 8,401 106,986 74,071
--------- -------- --------- --------
</TABLE>
P-33
<PAGE> 151
<TABLE>
<CAPTION>
NEW
IFG AMIT INSIGNIA IFG
HISTORICAL(I) MERGER(II) SPIN-OFF(III) AS ADJUSTED
------------- ---------- ------------- -----------
<S> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from secured notes payable borrowings............ 186,000 -- (8,766) 177,234
Principal repayments on secured notes payable............. (1,874) -- 6,113 4,239
Principal repayments on unsecured short-term notes
payable................................................. 2,644 -- -- 2,644
Payment of loan costs, net of proceeds from interest rate
hedge................................................... (83) -- -- (83)
Proceeds from exercises of employee stock options and
warrants................................................ 6,533 -- -- 6,533
Payment of distributions.................................. (6,541) (2,065) -- (8,606)
Payment of distributions minority interests............... (494) -- -- (494)
Net transactions with Insignia/ESG........................ (118,424) -- (122,579) (241,003)
--------- -------- --------- --------
Net cash provided by (used in) financing
activities........................................ 67,761 (2,065) (125,232) (59,536)
--------- -------- --------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (3,842) 8,915 (24,874) (19,801)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 88,847 3,947 (9,162) 83,632
--------- -------- --------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 85,005 $ 12,862 $ (34,036) $ 63,831
========= ======== ========= ========
</TABLE>
- ---------------
(i)Represents the unaudited consolidated statement of cash flows of IFG
for the nine months ended September 30, 1998. Certain reclassifications
have been made to IFG's historical statement of cash flows to conform
to the Partnership's statement of cash flows presentation. In addition,
the cash and cash equivalents at the beginning of the period has been
adjusted.
(ii)
Represents the historical statement of cash flows of AMIT, as well as
pro forma adjustments related to the AMIT Merger. The AMIT merger
closed prior to the IFG Merger.
(iii)
Represents the distribution of two shares of New Insignia common stock
for each three shares of IFG common stock to holders of IFG common
stock. In addition, the cash and cash equivalents at the beginning of
the period has been adjusted.
(F) Represents the following adjustments occurring as a result of the IFG
Merger and the IPT Merger; (i) the incremental depreciation of the purchase
price adjustment related to consolidated real estate and investments in
real estate partnerships; (ii) the amortization of goodwill and property
management contracts resulting from the IFG Merger; (iii) the increase in
interest expense resulting from the net increase in debt; and (iv) the
elimination of the income tax provision.
(G) Represents adjustments related to the IFG Reorganization, whereby,
following the IFG Merger, the Partnership contributed or sold to the
Unconsolidated Subsidiaries certain assets and liabilities of IFG,
primarily management contracts and related working capital assets and
liabilities related to IFG's third party management operations. The
adjustments reflect the related cash flow activity primarily related to the
management operations owned by IFG, with additional amortization recorded
related to the Partnership's new basis resulting from the allocation of the
purchase price of IFG.
(H) Represents adjustment to remove the use of cash to purchase the 1998
Acquisitions, as if these acquisitions occurred on January 1, 1997;
therefore, the purchases are included on the Pro Forma Consolidated
Statement of Cash Flows for the year ended December 31, 1997.
(I) Represents cash payments for capital improvements of $300 per unit on the
1998 Acquisitions.
(J) Represents adjustment to remove the proceeds from the sale of the 1998
Dispositions, as if these dispositions occurred on January 1, 1997;
therefore, the proceeds are included on the Pro Forma Consolidated
Statement of Cash Flows for the year ended December 31, 1997.
(K) Represents adjustment to remove net principal repayments assuming the 1998
Acquisitions, the 1998 Dispositions and the 1998 Stock Offerings occurred
January 1, 1997; therefore, the repayments are included on the Pro Forma
Consolidated Statement of Cash Flows for the year ended December 31, 1997.
(L) Represents adjustment to remove cash proceeds from the 1998 Stock
Offerings, as if these offerings occurred on January 1, 1997; therefore,
the repayments are included on the Pro Forma Consolidated Statement of Cash
Flows for the year ended December 31, 1997.
P-34
<PAGE> 152
(M) Represents pro forma distributions on the units issued in the Preferred
Partnership Unit Offering as if these units had been issued January 1,
1997.
(N) Represents distributions paid to limited partners on OP Units issued in
connection with the 1998 Acquisitions and the Probable Purchases, as if the
issuance of the OP Units occurred on January 1, 1997.
(O) Represents preferred unit distributions paid on the 1998 Stock Offerings as
if these occurred on January 1, 1997.
(P) Represents pro forma distributions and distributions to limited partners on
the shares issued in the Ambassador Merger as if these shares had been
issued on January 1, 1997.
(Q) Represents pro forma distributions on the shares issued in the IFG Merger
and IPT Merger as if these shares had been issued on January 1, 1997.
P-35
<PAGE> 153
PRO FORMA FINANCIAL INFORMATION OF
AIMCO PROPERTIES, L.P.
(EXCHANGE OFFERS)
INTRODUCTION
AIMCO Properties L.P. (the "Partnership") intends to offer to purchase
limited partnership interests in syndicated real estate limited partnerships in
which AIMCO holds partnership interests. The Partnership, is subject to
applicable law, plans to offer to purchase certain of such limited partnership
interests in exchange for (i) equity securities of the Partnership; (ii) cash or
(iii) a combination of such equity securities and cash. Such offers are expected
to include terms that will allow limited partners to continue to hold their
limited partnership interests.
The following Pro Forma Consolidated Balance Sheet (Exchange Offers) of the
Partnership as of September 30, 1998 has been prepared as if each of the
following transactions had occurred as of September 30, 1998: (i) all the
transactions discussed in the Pro Forma Financial Statements (Insignia Merger)
appearing elsewhere herein; and (ii) the acceptance of exchange offers by
limited partners in 91 limited partnerships.
The following Pro Forma Consolidated Statement of Operations (Exchange
Offers) and Pro Forma Consolidated Statement of Cash Flows (Exchange Offers) of
the Partnership for the year ended December 31, 1997 has been prepared as if
each of the following transactions had occurred as of January 1, 1997: (i) all
the transactions discussed in the Pro Forma Financial Statements (Insignia
Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers
by limited partners in 91 limited partnerships.
The following Pro Forma Consolidated Statement of Operations (Exchange
Offers) and Pro Forma Consolidated Statement of Cash Flows (Exchange Offers) of
the Partnership for the nine months ended September 30, 1998 has been prepared
as if each of the following transactions had occurred as of January 1, 1998: (i)
all the transactions discussed in the Pro Forma Financial Statements (Insignia
Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers
by limited partners in 91 limited partnerships.
The Pro Forma Financial Information (Exchange Offers) is based, in part, on
the historical financial statements of the partnerships in which the Exchange
Offers are made. The Pro Forma Financial Information (Exchange Offers) is also
based, in part, on the Pro Forma Financial Information (Insignia Merger) of the
Partnership included elsewhere herein. Such pro forma information is based in
part upon: (i) the audited Consolidated Financial Statements of Insignia for the
year ended December 31, 1997; (ii) the audited Consolidated Financial Statements
of Angeles Mortgage Investment Trust ("AMIT") for the year ended December 31,
1997; (iii) the unaudited Consolidated Financial Statements of Insignia for the
nine months ended September 30, 1998; and (iv) the unaudited Consolidated
Financial Statements of AMIT for the period from January 1, 1998 to September
17, 1998. The Pro Forma Financial Information (Insignia Merger) is also based,
in part, upon: (i) the audited Consolidated Financial Statements of Ambassador
for the year ended December 31, 1997; (ii) the audited Consolidated Financial
Statements of the Partnership for the year ended December 31, 1997; (iii) the
unaudited Consolidated Financial Statements of Ambassador for the four months
ended April 30, 1998; (iv) the unaudited Consolidated Financial Statements of
the Partnership for the nine months ended September 30, 1998; and (v) the
historical financial statements of certain properties and companies acquired by
AIMCO filed in AIMCO's Current Reports on Form 8-K, dated April 16, 1997, May 5,
1997, June 3, 1997, September 19, 1997, October 15, 1997, December 1, 1997 and
November 2, 1998. The following Pro Forma Financial Information (Exchange
Offers) should be read in conjunction with such financial statements and notes
thereto.
The unaudited Pro Forma Financial Information (Exchange Offers) has been
prepared under the assumption that after the exchange offers are accepted, AIMCO
will own varying ownership percentages of each partnership, and that the limited
partners will choose to elect to receive 35% of the consideration in the form of
equity securities of AIMCO Properties, L.P. and 65% of the consideration in the
form of cash. The
P-36
<PAGE> 154
interest to be acquired in each of the partnerships, the estimated purchase
price for each partnership, including cash, common units, or preferred units is
summarized below:
<TABLE>
<CAPTION>
INTEREST TO ESTIMATED
BE ACQUIRED PURCHASE
PARTNERSHIP NAME IN PARTNERSHIP PRICE CASH OP UNITS
---------------- -------------- --------- ------- --------
<S> <C> <C> <C> <C>
Angeles Income Properties, Ltd. II.................... 26.70 $ 4,946 $ 3,215 $1,731
Angeles Income Properties, Ltd. III................... 30.63 2,156 1,401 755
Angeles Income Properties, Ltd. IV.................... 18.64 1,154 750 404
Angeles Income Properties, Ltd. 6..................... 37.29 4,523 2,940 1,583
Angeles Opportunity Properties, Ltd................... 37.94 1,729 1,124 605
Angeles Partners VII.................................. 24.86 610 397 213
Angeles Partners VIII................................. 24.80 0 0 0
Angeles Partners IX................................... 18.92 1,171 761 410
Angeles Partners X.................................... 22.97 709 461 248
Angeles Partners XI................................... 21.83 205 133 72
Angeles Partners XII.................................. 11.89 2,877 1,870 1,007
Angeles Partners XIV.................................. 24.93 0 0 0
Baywood Partners, Ltd................................. 25.00 347 226 121
Brampton Associates Partnership....................... 25.00 382 248 134
Buccaneer Trace Limited Partnership................... 25.00 2 1 1
Burgundy Court Associates, L.P........................ 25.00 1,074 698 376
Calmark/Fort Collins, Ltd............................. 25.00 192 125 67
Calmark Heritage Park II Ltd.......................... 25.00 47 31 16
Casa Del Mar Associates Limited Partnership........... 21.16 503 327 176
Catawba Club Associates, L.P.......................... 25.00 85 55 30
Cedar Tree Investors Limited Partnership.............. 25.00 1,037 674 363
Century Properties Fund XVI........................... 12.52 831 540 291
Century Properties Fund XVIII......................... 13.08 474 308 166
Century Properties Fund XIX........................... 15.30 1,765 1,147 618
Century Properties Growth Fund XXII................... 21.43 4,977 3,235 1,742
Chapel Hill, Limited.................................. 21.15 569 370 199
Chestnut Hill Associates Limited Partnership.......... 26.75 1,582 1,028 554
Coastal Commons Limited Partnership................... 25.00 566 368 198
Consolidated Capital Institutional Properties/2 &
Consolidated Capital Equity Properties/2............ 18.98 7,320 4,758 2,562
Consolidated Capital Institutional Properties/3....... 16.37 6,770 4,401 2,369
Consolidated Capital Properties III................... 13.02 1,134 737 397
Consolidated Capital Properties IV.................... 18.04 9,407 6,112 3,295
Consolidated Capital Properties V..................... 16.69 560 364 196
Consolidated Capital Properties VI.................... 25.82 556 361 195
DFW Apartment Investors Limited Partnership........... 35.65 2,719 1,767 952
DFW Residential Investors Limited Partnership......... 37.60 1,092 710 382
Davidson Diversified Real Estate I, L.P............... 34.78 627 408 219
Davidson Diversified Real Estate II, L.P.............. 35.11 1,318 857 461
Davidson Diversified Real Estate III, L.P............. 21.76 0 0 0
Davidson Growth Plus, L.P............................. 23.91 2,304 1,498 806
Davidson Income Real Estate, L.P...................... 30.81 2,691 1,749 942
Drexel Burnham Lambert Real Estate Associates II...... 19.58 994 646 348
Four Quarters Habitat Apartment Associates, Ltd....... 25.00 174 113 61
Fox Strategic Housing Income Partners................. 33.18 2,414 1,569 845
Georgetown of Columbus Associates, L.P................ 25.00 227 148 79
HCW Pension Real Estate Fund Limited Partnership...... 32.64 2,368 1,539 829
Investors First-Staged Equity......................... 49.00 306 199 107
Johnstown/Consolidated Income Partners................ 25.66 1,871 1,216 655
La Colina Partners, Ltd............................... 25.00 583 379 204
Lake Eden Associates, L.P............................. 25.00 632 411 221
Landmark Associates, L.P.............................. 25.00 48 31 17
</TABLE>
P-37
<PAGE> 155
<TABLE>
<CAPTION>
INTEREST TO ESTIMATED
BE ACQUIRED PURCHASE
PARTNERSHIP NAME IN PARTNERSHIP PRICE CASH OP UNITS
---------------- -------------- --------- ------- --------
<S> <C> <C> <C> <C>
Minneapolis Associates II Limited Partnership......... 25.00 $ 2 $ 1 $ 1
Multi-Benefit Realty Fund "87-1-Class A & Class B..... 21.89 1,657 1,077 580
National Property Investors 8......................... 11.13 988 642 346
Northbrook Apartments, Ltd............................ 25.00 209 136 73
Olde Mill Investors Limited Partnership............... 8.75 170 111 59
Orchard Park Apartments Limited Partnership........... 25.00 1 1 0
Park Town Place Associates Limited Partnership........ 24.70 298 194 104
Quail Run Associates, L.P............................. 25.00 487 317 170
Ravensworth Associates Limited Partnership............ 25.00 1 1 0
Rivercreek Apartments Limited Partnership............. 25.00 180 117 63
Rivercrest Apartments, Limited........................ 25.00 1,687 1,097 590
Riverside Park Associates L.P......................... 13.69 590 384 206
Salem Arms of Augusta Limited Partnership............. 25.00 278 181 97
Shaker Square, L.P.................................... 23.75 631 410 221
Shannon Mannor Apartments, Limited Partnership........ 25.00 1,170 761 409
Sharon Woods, L.P..................................... 22.75 499 324 175
Shelter Properties III................................ 15.20 1,960 1,274 686
Shelter Properties IV................................. 50.52 12,764 8,295 4,469
Shelter Properties VI................................. 13.78 1,919 1,247 672
Shelter Properties VII Limited Partnership............ 26.65 1,975 1,284 691
Snowden Village Associates, L.P....................... 25.00 443 288 155
Springhill Lake Investors Limited Partnership......... 11.84 2,908 1,890 1,018
Sturbrook Investors, Ltd.............................. 25.00 377 245 132
Sycamore Creek Associates, L.P........................ 25.00 1 1 0
Texas Residential Investors Limited Partnership....... 18.45 1,147 746 401
Thurber Manor Associates, Limited Partnership......... 25.00 218 142 76
U.S. Realty Partners Limited Partnership.............. 25.00 1,441 937 504
United Investors Growth Properties.................... 39.01 165 107 58
United Investors Growth Properties II................. 25.00 351 228 123
United Investors Income Properties.................... 23.44 1,977 1,285 692
Villa Nova, Limited Partnership....................... 25.00 228 148 80
Walker Springs, Limited............................... 23.99 95 62 33
Wingfield Investors Limited Partnership............... 25.00 179 116 63
Winrock-Houston Limited Partnership................... 13.60 1,041 677 364
Winthrop Apartment Investors Limited Partnership...... 31.60 1,318 857 461
Winthrop Growth Investors 1 Limited Partnership....... 27.94 1,233 801 432
Winthrop Texas Investors Limited Partnership.......... 5.27 158 103 55
Woodmere Associates, L.P.............................. 25.00 280 182 98
Yorktown Towers Associates............................ 25.00 809 526 283
-------- ------- ------
Total (See adjustment C to the Pro Forma Consolidated
Balance Sheet)...................................... $122,463 $79,601 42,862
======== ======= ======
</TABLE>
The unaudited Pro Forma Financial Information (Exchange Offers) has been
prepared using the purchase method of accounting whereby the assets and
liabilities of NHP, the NHP Real Estate Companies, Ambassador, IFG, IPT, the
Exchange Offers, the 1997 Acquisitions, the 1998 Acquisitions and the Probable
Purchases are adjusted to estimated fair market value, based on 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 (Exchange
Offers) may differ from the amounts ultimately determined.
P-38
<PAGE> 156
The following unaudited Pro Forma Financial Information (Exchange Offers)
is presented for informational purposes only and is not necessarily indicative
of the financial position or results of operations of the Partnership 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, results of
operations or cash flows. In the opinion of the Partnership's management, all
material adjustments necessary to reflect the effects of these transactions have
been made.
AIMCO PROPERTIES, L.P.
PRO FORMA CONSOLIDATED BALANCE SHEET (EXCHANGE OFFERS)
AS OF SEPTEMBER 30, 1998
ASSETS
<TABLE>
<CAPTION>
INSIGNIA MERGER PRO FORMA
PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS
--------------- -------------- ---------------
(IN THOUSANDS, EXCEPT UNIT DATA)
<S> <C> <C> <C>
Real estate....................................... $2,625,822 $ 12,764(C)
26,954(D)
13,655(E) $2,679,195
Property held for sale............................ 42,212 -- 42,212
Investments in and notes receivable from
unconsolidated subsidiaries..................... 186,277 -- 186,277
Investments in and notes receivable from
unconsolidated partnerships..................... 924,309 109,699(C)
(13,655)(E)
(8,161)(F)
816(G) 1,013,008
Mortgage notes receivable......................... 20,916 -- 20,916
Cash and cash equivalents......................... 104,955 2,620(D) 107,575
Restricted cash................................... 84,526 1,807(D) 86,333
Accounts receivable............................... 27,900 1,081(D) 28,981
Deferred financing costs.......................... 21,835 -- 21,835
Goodwill.......................................... 251,024 -- 251,024
Property management contracts..................... 38,371 -- 38,371
Other assets...................................... 82,670 422(D) 83,092
---------- -------- ----------
$4,410,817 $148,002 $4,558,819
========== ======== ==========
LIABILITIES AND PARTNERS' CAPITAL
Secured notes payable............................. $ 926,246 $ 23,642(D) $ 949,888
Secured tax-exempt bond financing................. 399,925 -- 399,925
Secured short-term financing...................... 32,691 -- 32,691
Unsecured short-term financing.................... 300,000 79,601(C) 379,601
Accounts payable, accrued and other liabilities... 248,253 826(D) 249,079
Security deposits and deferred income............. 13,171 255(D) 13,426
---------- -------- ----------
1,920,286 104,324 2,024,610
Minority interests................................ 79,431 816(G) 80,247
Company obligated mandatorily redeemable
convertible securities of a subsidiary trust.... 149,500 -- 149,500
Redeemable common partnership units............... 277,581 8,161(D)
(8,161)(F)
30,616(C) 308,197
Redeemable preferred partnership units............ -- 12,246(C) 12,246
Partner's capital
General and Special Limited Partner............. 1,496,457 -- 1,496,457
Preferred Units................................. 487,562 -- 487,562
---------- -------- ----------
1,984,019 -- 1,984,019
---------- -------- ----------
$4,410,817 $148,002 $4,558,819
========== ======== ==========
</TABLE>
- ---------------
(A) See "Pro Forma Financial Information (Insignia Merger)."
P-39
<PAGE> 157
(B) Represents adjustments related to the Partnership's purchase of additional
limited partnership interests in 91 real estate partnerships. Selected
historical balance sheet data as of September 30, 1998 (unaudited) related
to the 91 real estate partnerships is as follows (dollars in thousands):
<TABLE>
<S> <C>
Real estate................................................. $1,082,652
Cash........................................................ 151,024
Total assets................................................ 1,493,409
Mortgages payable........................................... 1,585,196
Partners' capital (deficit)................................. (171,740)
</TABLE>
(C) Represents the purchase price paid by the Partnership to the limited
partners in order to obtain additional ownership by AIMCO in 91 real estate
partnerships. For the purposes of the pro-forma presentation, it is
assumed: (i) 65% of the purchase price is funded with cash by drawing down
on the Partnership's unsecured short term credit facility; (ii) 25% of the
purchase price is funded by the issuance of 749,362 OP Units at $40 per OP
Unit; and (iii) 10% of the purchase price is funded by the issuance of 8%
Preferred OP Units.
(D) Represents historical balance sheet data related to the one real estate
partnership that will be consolidated as a result of the Partnership's
purchase of additional partnership interests.
(E) Represent the adjustment to real estate recorded in the IFG Merger related
to the one real estate partnership that will be consolidated as a result of
the Partnership's purchase of additional partnership interests.
(F) Represents the elimination of the partners' capital in the one real estate
partnership that will be consolidated as a result of the Partnership's
purchase of additional partnership interests.
(G) Represents minority interest of the one real estate partnership that will
be consolidated as a result of the Partnership's purchase of additional
partnership interests.
P-40
<PAGE> 158
AIMCO PROPERTIES, L.P.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (EXCHANGE OFFERS)
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
INSIGNIA MERGER PRO FORMA
PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS
--------------- -------------- ---------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Rental and other property operations.............. $ 431,256 $ 11,270(C) $ 442,526
Property operating expenses....................... (182,830) (6,612)(C) (189,442)
Owned property management expense................. (11,831) -- (11,831)
Depreciation...................................... (96,264) (2,589)(C) (98,853)
--------- -------- ---------
Income from property operations................... 140,331 2,069 142,400
--------- -------- ---------
Management fees and other income.................. 41,676 -- 41,676
Management and other expenses..................... (23,683) -- (23,683)
Corporate overhead allocation..................... (588) -- (588)
Amortization...................................... (26,480) -- (26,480)
--------- -------- ---------
Income from service company business.............. (9,075) -- (9,075)
Minority interest in service company business..... (10) -- (10)
--------- -------- ---------
Partnership's share of income from service company
business........................................ (9,085) -- (9,085)
--------- -------- ---------
General and administrative expenses............... (21,371) -- (21,371)
Interest expense.................................. (113,788) (5,691)(D)
(2,220)(C) (121,699)(H)
Interest income................................... 21,734 21,734
Minority interests................................ (9,983) (51)(E) (10,034)
Equity in losses of unconsolidated partnerships... (27,537) (16,864)(F)
483(G) (43,918)(I)
Equity in earnings of Unconsolidated
Subsidiaries.................................... 5,848 -- 5,848
--------- -------- ---------
Net income (loss)................................. (13,851) (22,274) (36,125)(H)
Income attributable to Preferred Unitholders...... 42,174 980 43,154(J)
--------- -------- ---------
Income (loss) attributable to OP Unitholders...... (56,025) $(23,254) $ (79,279)(H)
========= ======== =========
Basic earnings (loss) per OP Unit................. (.83) $ (1.16)(H)
========= =========
Diluted earnings (loss) per OP Unit............... $ (.83) $ (1.16)(H)
========= =========
Weighted average OP Units outstanding............. 67,522 68,287
========= =========
Weighted average OP Units and equivalents
outstanding..................................... 68,366 69,131
========= =========
</TABLE>
- ---------------
(A) See "Pro Forma Financial Information (Insignia Merger)."
(B) Represents adjustments related to the Partnership's purchase of additional
limited partnership interests in 91 real estate partnerships. Selected
historical operating data for the year ended December 31, 1997 related to
the 91 real estate partnerships is as follows (dollars in thousands):
<TABLE>
<S> <C>
Revenue..................................................... $456,968
Operating expense........................................... 249,097
Depreciation................................................ 87,344
Interest.................................................... 138,778
Net income.................................................. 15,005
</TABLE>
(C) Represents historical statement of operations data related to the one real
estate partnership that will be consolidated as a result of the
Partnership's purchase of additional limited partnership interests.
(D) Represents the increase in interest expense related to borrowings to pay
the cash portion of the purchase price of the partnership interests. The
interest rate used in the calculation of interest expense was LIBOR plus
1.75%.
(E) Represents the minority interests share of net income of the one real
estate partnership that will be consolidated as a result of the
Partnership's purchase of additional limited partnership interests.
P-41
<PAGE> 159
(F) Represents the changes in the Partnership's equity in losses from the 91
real estate partnerships of (i) $10,740 resulting from the Partnership's
increase in the ownership based on the historical operating results of the
91 real estate partnerships; and (ii) amortization of $6,124 related to the
increased basis in investments in real estate partnerships, as a result of
the allocation of the purchase price of the partnership interests, based on
an estimated average life of 20 years.
(G) Represents the elimination of the equity earnings related to the one real
estate partnership that will be consolidated as a result of the
Partnership's purchase of additional limited partnership interests.
(H) The pro forma financial statements have been prepared under the assumption
that the limited partners will elect 65% of the consideration to be paid in
cash, 25% of the consideration to be paid in the form of common OP Units,
and 10% of the consideration to be paid in the form of 8% Preferred OP
Units. The following table shows the effect on interest expense, net loss,
preferred unit distributions, and net loss per OP Unit in the event that
the limited partners elect to receive all their consideration in cash,
common OP Units, and 8% Preferred OP Units, respectively:
<TABLE>
<CAPTION>
8% PREFERRED
PRO FORMA CASH COMMON OP UNITS OP UNITS
--------- --------- --------------- ------------
<S> <C> <C> <C> <C>
Interest expense......... $(121,699) $(124,763) $(116,008) $(116,008)
Net loss................. (36,125) (39,189 (30,434) (30,434)
Preferred unit
distributions.......... 43,154 42,174 42,174 51,971
Net loss attributable to
OP Unitholders......... (79,279) (81,363) (72,608) (82,405)
Net loss per OP Unit..... (1.16) (1.20) (1.03) (1.22)
</TABLE>
In addition, the following table presents the net impact to interest
expense, net loss, and net loss per OP Unit assuming the interest rate per
annum increases by 0.25%:
<TABLE>
<CAPTION>
8% PREFERRED
PRO FORMA CASH COMMON OP UNITS OP UNITS
--------- -------- --------------- ------------
<S> <C> <C> <C> <C>
Increase in interest
expense.................. $ 1,137 $ 1,245 $ 938 $ 938
Net loss................... (37,262) (40,434) (31,372) (31,372)
Net loss attributable to OP
Unitholders.............. (80,416) (82,608) (73,546) (83,343)
Net loss per OP Unit....... (1.18) (1.22) (1.04) (1.23)
</TABLE>
(I) The pro forma financial statements have been prepared under the assumption
that after the exchange offers are accepted, the Partnership will own 49%
of certain 88 Partnerships, 25% of two Partnerships, and 100% of one
Partnership. The amount included in the pro forma financial statements
assume an acceptance rate of 100%. The following table shows the effect on
equity in earnings of unconsolidated partnerships, net loss, net loss
attributable to OP Unitholders, and net loss per OP Unit in the event that
the Partnership will have an acceptance rate of 50% of the interests
tendered and will own varying percentages of each partnership:
<TABLE>
<S> <C>
Equity in earnings of unconsolidated partnerships........... $(36,510)
Net loss.................................................... (26,084)
Net loss attributable to OP Unitholders..................... (68,784)
Net loss per OP Unit........................................ (1.01)
</TABLE>
(J) Represents the net income attributable to holders of the Class B Preferred
Units, the Class C Preferred Units, the Class D Preferred Units, the Class
G Preferred Units, the Class H Preferred Units, the Class J Preferred Units
and the 8% Preferred OP Units as if these Preferred Units had been issued
as of January 1, 1997.
P-42
<PAGE> 160
AIMCO PROPERTIES, L.P.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (EXCHANGE OFFERS)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
INSIGNIA MERGER PRO FORMA
PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS
--------------- -------------- ---------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Rental and other property operations............... $ 337,307 $ 8,654(C) $ 345,961
Property operating expenses........................ (131,851) (4,389)(C) (136,240)
Owned property management expense.................. (8,933) -- (8,933)
Depreciation....................................... (78,479) (1,941)(C) (80,420)
--------- -------- ---------
Income from property operations.................... 118,044 2,324 120,368
--------- -------- ---------
Management fees and other income................... 28,912 -- 28,912
Management and other expenses...................... (14,386) -- (14,386)
Corporate overhead allocation...................... (196) -- (196)
Amortization....................................... (15,243) -- (15,243)
--------- -------- ---------
Income from service company business............... (913) -- (913)
Minority interest in service company business...... -- -- --
--------- -------- ---------
Partnership's share of income from service company
business......................................... (913) -- (913)
--------- -------- ---------
General and administrative expenses................ (8,632) -- (8,632)
Interest expense................................... (85,010) (4,250)(D)
(1,630)(C) (90,890)(H)
Interest income.................................... 40,887 40,887
Minority interests................................. (8,429) (119)(E) (8,548)
Equity in losses of unconsolidated partnerships.... (10,234) (13,156)(F)
41(G) (23,349)(I)
Equity in earnings of Unconsolidated
Subsidiaries..................................... 851 -- 851
Amortization of goodwill........................... (5,071) -- (5,071)
--------- -------- ---------
Net income (loss).................................. 41,493 (16,790) 24,703(H)
Income attributable to Preferred Unitholders....... 32,414 735 33,149(J)
--------- -------- ---------
Income (loss) attributable to OP Unitholders....... $ 9,079 $(17,525) $ (8,446)(H)
========= ======== =========
Basic earnings (loss) per OP Unit.................. $ .13 $ (.12)(H)
========= =========
Diluted earnings (loss) per OP Unit................ $ .13 $ (.12)(H)
========= =========
Weighted average OP Units outstanding.............. 68,554 69,319
========= =========
Weighted average OP Units and equivalents
outstanding...................................... 69,218 69,983
========= =========
</TABLE>
- ---------------
(A) See "Pro Forma Financial Information (Insignia Merger)."
(B) Represents adjustments related to the Partnership's purchase of additional
limited partnership interests in 91 real estate partnerships. Selected
historical operating data (unaudited) for the nine months ended September
30, 1998 related to the 91 real estate partnerships is as follows (dollars
in thousands):
<TABLE>
<S> <C>
Revenue..................................................... $338,937
Operating expense........................................... 182,529
Depreciation................................................ 64,127
Interest.................................................... 103,756
Net income.................................................. (9,329)
</TABLE>
(C) Represents historical statement of operations data related to the one real
estate partnership that will be consolidated as a result of the
Partnership's purchase of additional limited partnership interests.
(D) Represents the increase in interest expense related to borrowings to pay
the cash portion of the purchase price of the partnership interests. The
interest rate used in the calculation of interest expense was LIBOR plus
1.75%.
P-43
<PAGE> 161
(E) Represents the minority interests share of net income of the one real
estate partnership that will be consolidated as a result of the
Partnership's purchase of additional limited partnership interests.
(F) Represents the changes in the Partnership's equity in losses from the 91
real estate partnerships of (i) $8,552 resulting from the Partnership's
increase in the ownership based on the historical operating results of the
91 real estate partnerships; and (ii) amortization of $4,604 related to the
increased basis in investments in real estate partnerships, as a result of
the allocation of the purchase price of the partnership interests, based on
an estimated average life of 20 years.
(G) Represents the elimination of the equity earnings related to the one real
estate partnership that will be consolidated as a result of the
Partnership's purchase of additional limited partnership interests.
(H) The pro forma financial statements have been prepared under the assumption
that the limited partners will elect 65% of the consideration to be paid in
cash, 25% of the consideration to be paid in the form of common OP Units,
and 10% of the consideration to be paid in the form of 8% Preferred OP
Units. The following table shows the effect on interest expense, net
income, preferred unit distributions, and net loss per OP Unit in the event
that the limited partners elect to receive all their consideration in cash,
common OP Units, and 8% Preferred OP Units, respectively:
<TABLE>
<CAPTION>
8% PREFERRED
PRO FORMA CASH COMMON OP UNITS OP UNITS
--------- -------- --------------- ------------
<S> <C> <C> <C> <C>
Interest expense........... $(90,890) $(93,184) $(86,640) $(86,640)
Net income................. 24,703 22,409 28,953 28,953
Preferred unit
distributions............ 33,149 32,414 32,414 39,762
Net loss attributable to OP
Unitholders.............. (8,446) (10,005) (3,461) (10,809)
Net loss per OP Unit....... (.12) (.15) (.05) (.16)
</TABLE>
In addition, the following table presents the net impact to interest
expense, net loss, and net loss per OP Unit assuming the interest rate per
annum increases by 0.25%:
<TABLE>
<CAPTION>
8% PREFERRED
PRO FORMA CASH COMMON OP UNITS OP UNITS
--------- ------- --------------- ------------
<S> <C> <C> <C> <C>
Increase in interest
expense.................... $ 851 $ 931 $ 702 $ 702
Net income................... 24,703 21,478 28,251 28,251
Net loss attributable to OP
Unitholders................ (9,296) (10,936) (4,163) (11,511)
Net loss per OP Unit......... (.13) (.16) (.06) (.17)
</TABLE>
(I) The pro forma financial statements have been prepared under the assumption
that after the exchange offers are accepted, AIMCO will own 49% of certain
88 Partnerships, 25% of two Partnerships, and 100% of one Partnership. The
following table shows the effect on equity in earnings of unconsolidated
partnerships, net income, net income (loss) attributable to OP Unitholders,
and net loss per OP Unit in the event the Partnership will own varying
percentages of each partnership.
<TABLE>
<S> <C>
Equity in earnings of unconsolidated partnerships........... $(17,797)
Net income.................................................. 32,216
Net income (loss) attributable to OP Unitholders............ (593)
Net income (loss) per OP Unit............................... (.01)
</TABLE>
(J) Represents the net income attributable to holders of the Class B Preferred
Units, the Class C Preferred Units, the Class D Preferred Units, the Class
G Preferred Units, the Class H Preferred Units, the Class J Preferred Units
and the 8% Preferred OP Units as if these Preferred Units had been issued
as of January 1, 1997.
P-44
<PAGE> 162
AIMCO PROPERTIES, L.P.
PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (EXCHANGE OFFERS)
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
INSIGNIA MERGER PRO FORMA
PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS
--------------- -------------- ---------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (loss)......................................... $ (13,851) $(22,274)(C) $ (36,125)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization........................... 128,169 2,589(D) 130,758
Gain on investments..................................... (12) -- (12)
(Gain) loss on disposition of properties................ (3,882) -- (3,882)
Minority interests...................................... 9,983 51 10,034
Equity in earnings of unconsolidated partnerships....... 27,537 16,864(E)
(483)(F) 43,918
Equity in earnings of unconsolidated subsidiaries....... (5,848) -- (5,848)
Extraordinary (gain) loss on early extinguishment of
debt.................................................. --
Changes in operating assets and operating liabilities... 519 (660)(G) (141)
---------- -------- ----------
Total adjustments................................... 156,466 18,361 174,827
---------- -------- ----------
Net cash provided by (used in) operating
activities........................................ 142,615 (3,913) 138,702
Net cash used in discontinued operations............ (7,999) -- (7,999)
---------- -------- ----------
Net cash provided by (used in) continuing
operations........................................ 134,616 (3,913) 130,703
---------- -------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of real estate......................... 41,419 -- 41,419
Purchase of real estate................................... (625,603) -- (625,603)
Additions to real estate, investments and property held
for sale................................................ (55,892) (1,024)(G) (56,916)
Proceeds from sale of property held for sale.............. 303 -- 303
Purchase of general and limited partnership interests..... (276,458) (79,601)(H) (356,059)
Purchase of management contracts.......................... (48,554) -- (48,554)
Purchase of/additions to notes receivable................. (81,670) -- (81,670)
Proceeds from repayments of notes receivable.............. 10,052 -- 10,052
Distributions from investments in real estate partnerships
and unconsolidated subsidiaries......................... 94,686 10,070(I) 104,756
Contribution to unconsolidated subsidiaries............... (42,879) -- (42,879)
Proceeds from sale of securities.......................... 642 -- 642
Purchase of investments held for sale..................... (73) -- (73)
Purchase of NHP........................................... (60,575) -- (60,575)
Purchase of Ambassador common stock....................... (19,881) -- (19,881)
---------- -------- ----------
Net cash used in investing activities............... (1,064,483) (70,555) (1,135,038)
---------- -------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from secured notes payable borrowings............ 761,270 -- 761,270
Principal repayments on secured notes payable............. (307,917) (713)(G) (308,630)
Proceeds from secured short-term financing................ 19,050 79,601(H) 98,651
Repayments on secured short-term financing................ (259,461) -- (259,461)
Principal repayments on unsecured short-term notes
payable................................................. (50,879) -- (50,879)
Proceeds (payoff) from unsecured short-term financing..... (12,500) -- (12,500)
Principal repayments on secured tax-exempt bond
financing............................................... (1,487) -- (1,487)
Net borrowings (paydowns) on the Company's revolving
credit facilities....................................... (162,008) -- (162,008)
Payment of loan costs, net of proceeds from interest rate
hedge................................................... (17,032) -- (17,032)
Proceeds from issuance of common and preferred stock,
net..................................................... 1,098,265 -- 1,098,265
Proceeds from exercises of employee stock options and
warrants................................................ 11,553 -- 11,553
Repurchase of common stock................................ (3,283) -- (3,283)
Principal repayments received on notes due from
Officers................................................ 27,280 -- 27,280
Investments made by minority interests.................... 249 -- 249
Receipt of contributions from minority interests.......... 37,345 -- 37,345
Payments of distributions to minority interests........... (2,713) -- (2,713)
Payment of distributions.................................. (130,657) -- (130,657)
Payment of distributions to limited partners.............. (5,208) (1,415)(J) (6,623)
Payment of preferred unit distributions................... (42,984) (979)(K) (43,963)
Payment of distributions to minority interests............ (21,788) -- (21,788)
Net transactions with Insignia/ESG........................ (57,612) -- (57,612)
---------- -------- ----------
Net cash provided by financing activities........... 879,483 76,494 955,977
---------- -------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (50,384) 2,026 (48,358)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 117,896 2,291 120,187
---------- -------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 67,512 $ 4,317 $ 71,829
========== ======== ==========
</TABLE>
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<PAGE> 163
- ---------------
(A) See "Pro Forma Financial Information (Insignia Merger)."
(B) Represents adjustments related to the Partnership's purchase of additional
limited partnership interests in 91 real estate partnerships. Selected
historical cash flow data for the year ended December 31, 1997 related to
the 91 real estate partnerships is as follows (dollars in thousands):
<TABLE>
<S> <C>
Cash provided by operating activities..................... $ 65,372
Cash used in investing activities......................... (11,713)
Cash used in financing activities......................... (74,617)
</TABLE>
(C) Represents the pro forma net loss related to the Partnership's purchase of
additional limited partnership interests in 91 real estate partnerships.
(D) Represents additional deprecation related to the one real estate
partnership that will be consolidated as a result of the Partnership's
purchase of additional limited partnership interests, based on the
Partnership's new basis in the real estate. Buildings and improvements are
depreciated on the straight-line method over a period of 20 years and
furniture and fixtures are depreciated on the straight-line method over a
period of 5 years.
(E) Represents the increase in the Partnership's equity in earnings from the 90
real estate partnerships resulting from the Partnership's corresponding
increase in ownership.
(F) Represents the elimination of the equity earnings related to one real
estate partnership that will be consolidated as a result of the
Partnership's purchase of the additional limited partnership interests.
(G) Represents historical cash flow data related to the one real estate
partnership that will be consolidated as a result of the Partnership's
purchase of additional limited partnership interests.
(H) Represents the cash portion of the purchase price (and additional
borrowings by the Partnership) related to the acquisition by the
Partnership of additional limited partnership interests in 91 real estate
limited partnerships.
(I) Represents the distributions to be received for the additional partnership
interests acquired by the Partnership in the 91 real estate partnerships,
based on the historical distributions paid per partnership unit.
(J) Represents adjustments for distributions paid on the Common OP Units
assumed to be issued by the Partnership to acquire the additional limited
partnership interests in 91 real estate limited partnerships, at the
historical distribution amount of $1.85 per Common OP Unit.
(K) Represents adjustments for distributions paid on the Preferred OP Units
assumed to be issued by the Partnership to acquire the additional limited
partnership interests in 91 real estate limited partnerships, at a
distribution rate of 8% per Preferred OP Unit.
P-46
<PAGE> 164
AIMCO PROPERTIES, L.P.
PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (EXCHANGE OFFERS)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
INSIGNIA MERGER PRO FORMA
PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS
--------------- -------------- ---------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (loss)......................................... $ 41,493 $(16,790)(C) $ 24,703
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization........................... 101,523 1,941(D) 103,464
(Gain) loss on disposition of properties................ -- -- --
Minority interests...................................... 8,429 119 8,548
Equity in earnings of unconsolidated partnerships....... 10,234 13,156(E)
(41)(F) 23,349
Equity in earnings of unconsolidated subsidiaries....... (851) -- (851)
Non-cash compensation................................... 796 -- 796
Changes in operating assets and operating liabilities... (69,549) (21)(G) (69,570)
--------- -------- ---------
Total adjustments................................... 50,582 15,154 65,736
--------- -------- ---------
Net cash provided by operating activities........... 92,075 (1,636) 90,439
--------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of real estate................................... 27,122 -- 27,122
Additions to real estate.................................. (57,526) (668)(G) (58,194)
Proceeds from sale of property and investments held for
sale.................................................... (35) -- (35)
Additions to property held for sale....................... (1,986) -- (1,986)
Purchase of general and limited partnership interests..... (9,596) -- (9,596)
Purchase of/additions to notes receivable................. (100,034) -- (100,034)
Proceeds from repayments/sale of notes receivable......... 42,747 -- 42,747
Distributions from investments in real estate partnerships
and unconsolidated subsidiaries......................... 23,629 5,809(H) 29,438
Payment of trust based preferred dividends................ (7,415) -- (7,415)
Cash received in connection with Ambassador Merger and
AMIT Merger............................................. 17,915 -- 17,915
Contribution to unconsolidated subsidiaries............... (13,032) -- (13,032)
Purchase of investments held for sale..................... (4,935) -- (4,935)
Redemption of OP Units.................................... (516) -- (516)
Merger costs.............................................. (1,402) -- (1,402)
--------- -------- ---------
Net cash used in investing activities............... (85,064) 5,141 (79,923)
--------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from secured notes payable borrowings............ 291,885 -- 291,885
Principal repayments on secured notes payable............. (52,023) -- (52,023)
Principal advances on secured tax-exempt bond financing... 21,784 -- 21,784
Principal repayments on secured tax-exempt bond
financing............................................... (1,436) -- (1,436)
Net borrowings/ repayments on secured short-term
financing............................................... 135,332 -- 135,332
Net borrowings (paydowns) on the revolving credit
facilities.............................................. 2,513 (812)(G) 1,701
Principal repayments on unsecured short-term notes
payable................................................. 2,644 -- 2,644
Payment of loan costs, net of proceeds from interest rate
hedge................................................... (5,810) -- (5,810)
Proceeds from issuance of common stock and preferred
stock, net.............................................. -- -- --
Repurchase of common stock................................ (10,972) -- (10,972)
Proceeds from exercises of employee stock options and
warrants................................................ 16,294 -- 16,294
Principal repayments received on notes due from
Officers................................................ 8,084 -- 8,084
Receipt of contributions from minority interests.......... -- -- --
Payments of distributions to minority interests........... (2,034) (2,034)
Payment of distributions.................................. (107,989) -- (107,989)
Payment of distributions to limited partners.............. (12,669) (1,291)(I) (13,960)
Payment of preferred unit distributions................... (27,010) (735)(J) (27,745)
Proceeds from issuance of High Performance Units.......... 1,988 -- 1,988
Net transactions with Insignia/ESG........................ (241,003) -- (241,003)
--------- -------- ---------
Net cash provided by financing activities........... 19,578 (2,838) 16,740
--------- -------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 26,589 667 27,256
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 55,700 4,316 60,016
--------- -------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 82,289 $ 4,983 $ 87,272
========= ======== =========
</TABLE>
P-47
<PAGE> 165
- ---------------
(A) See "Pro Forma Financial Information (Insignia Merger)."
(B) Represents adjustments related to the Partnership's purchase of additional
limited partnership interests in 91 real estate partnerships. Selected
historical cash flow data for the nine months ended September 30, 1998
related to the 91 real estate partnerships is as follows (dollars in
thousands):
<TABLE>
<S> <C>
Cash provided by operating activities..................... $ 76,113
Cash used in investing activities......................... (22,616)
Cash used in financing activities......................... (42,273)
</TABLE>
(C) Represents the pro forma net loss related to the Partnership's purchase of
additional limited partnership interests in 91 real estate partnerships.
(D) Represents additional deprecation related to the one real estate
partnership that will be consolidated as a result of the Partnership's
purchase of additional limited partnership interests, based on the
Partnership's new basis in the real estate. 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.
(E) Represents the increase in the Partnership's equity in earnings from the 90
real estate partnerships resulting from the Partnership's corresponding
increase in ownership.
(F) Represents the elimination of the equity earnings related to one real
estate partnership that will be consolidated as a result of the
Partnership's purchase of the additional limited partnership interests.
(G) Represents historical cash flow data related to the one real estate
partnership that will be consolidated as a result of the Partnership's
purchase of additional limited partnership interests.
(H) Represents the distributions to be received for the additional partnership
interests acquired by the Partnership in the 91 real estate partnerships,
based on the historical distributions paid per partnership unit.
(I) Represents adjustments for distributions paid on the Common OP Units
assumed to be issued by the Partnership to acquire the additional limited
partnership interests in 91 real estate limited partnerships, at the
historical distribution amount of $1.6875 per Common OP Unit.
(J) Represents adjustments for distributions paid on the Preferred OP Units
assumed to be issued by the Partnership to acquire the additional limited
partnership interests in 91 real estate limited partnerships, at a
distribution rate of 8% per Preferred OP Unit.
P-48
<PAGE> 166
APPENDIX A
OPINION OF ROBERT A. STANGER & CO., INC.
PRELIMINARY FORM OF OPINION
AIMCO Properties, L.P.
1873 South Bellaire -- Suite 1700
Denver, Colorado 80222
Re: Ravensworth Associates L.P.
Gentlemen:
You have advised us that AIMCO Properties, L.P. (the "Purchaser"), a
subsidiary of Apartment Investment and Management Company ("AIMCO"), which
directly or indirectly owns the general partner (the "General Partner") of
Ravensworth Associates L.P. (the "Partnership") (the Purchaser, AIMCO, the
General Partner and other affiliates and subsidiaries of AIMCO are referred to
herein collectively as the "Company"), is contemplating a transaction (the
"Offer") in which limited partnership interests in the Partnership (the "Units")
will be acquired by the Purchaser in exchange for an offer price per Unit of
$100 in cash, or 2.75 Common OP Units of the Purchaser, or 4 Preferred OP Units
of the Purchaser, or a combination of any of such forms of consideration. The
limited partners of the Partnership (the "Limited Partners") will have the
choice to maintain their current interest in the Partnership or exchange their
Units for any or a combination of such forms of consideration. The amount of
cash, Common OP Units or Preferred OP Units offered per Unit is referred to
herein as the "Offer Price."
You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide
its opinion as to whether the Offer Price is fair to the Limited Partners of the
Partnership from a financial point of view.
Since its founding in 1978, Stanger and its affiliates have provided
information, research, investment banking and consulting services to clients
located throughout the United States, including major New York Stock Exchange
member firms, insurance companies and over seventy companies engaged in the
management and operation of partnerships and real estate investment trusts. The
investment banking activities of Stanger include financial advisory and fairness
opinion services, asset and securities valuations, industry and company research
and analysis, litigation support and expert witness services, and due diligence
investigations in connection with both publicly registered and privately placed
securities transactions.
Stanger, as part of its investment banking business, is regularly engaged
in the valuation of businesses and their securities in connection with mergers,
acquisitions, reorganizations and for estate, tax, corporate and other purposes.
Stanger's valuation practice principally involves partnerships, partnership
securities and the assets typically held through partnerships, such as real
estate, oil and gas reserves, cable television systems and equipment leasing
assets.
In the course of our analysis for rendering this opinion, we have, among
other things:
1. Reviewed a draft of the Prospectus Supplement related to the Offer
in a form management has represented to be substantially the same as will
be distributed to the Limited Partners;
2. Reviewed the Partnership's financial statements for the years ended
December 31, 1996 and 1997, and the quarterly report for the period ending
September 31, 1998, which the Partnership's management has indicated to be
the most current available financial statements;
3. Reviewed descriptive information concerning the real property owned
by the Partnership (the "Property"), including location, number of units
and unit mix, age, amenities and land acreage;
4. Reviewed summary historical operating statements for the Property,
for the years ended December 31, 1996 and 1997, and the nine months ending
September 30, 1998;
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<PAGE> 167
5. Reviewed the 1998 operating budget for the Property prepared by the
Partnership's management. Such budgets are summarized in the Prospectus
Supplement under the section "Stanger Analysis -- Summary of Materials
Considered";
6. Reviewed the estimate of liquidation value and going concern value
provided by the general partner to Stanger. Such estimates are described in
the Prospectus Supplement under the section "Fairness of the
Offer -- Comparison of Consideration to Alternative Consideration." In
addition, we reviewed the 1998 operating budgets for each property provided
by the Partnership;
7. Discussed with management market conditions for the Property;
conditions in the market for sales/acquisitions of properties similar to
that owned by the Partnership; historical, current and expected operations
and performance of the Property and the Partnership; the physical condition
of the Property including any deferred maintenance; and other factors
influencing value of the Property and the Partnership;
8. Performed a site inspection of the Property;
9. Reviewed data and discussed with local sources real estate rental
market conditions in the market of the Property, and reviewed available
information relating to acquisition criteria for income-producing
properties similar to the Property;
10. Reviewed information provided by the Company relating to debt
encumbering the Property; and
11. Conducted such other studies, analyses, inquiries and
investigations as we deemed appropriate.
In rendering this opinion, we have relied upon and assumed, without
independent verification, the accuracy and completeness of all financial
information and management reports and data, and all other reports and
information contained in the Prospectus Supplement or that were provided, made
available or otherwise communicated to us by the Partnership and the Company. We
have not performed an independent appraisal, engineering study or environmental
study of the assets and liabilities of the Partnership. We have relied upon the
representations of the Partnership and the Company concerning, among other
things, any environmental liabilities, deferred maintenance and estimated
capital expenditures and replacement reserve requirements, the determination and
valuation of non-real estate assets and liabilities of the Partnership, the
terms and conditions of any debt encumbering the Property, the allocation of net
Partnership values between the General Partner and Limited Partners, and the
transaction costs and fees associated with a sale of the Property. We have also
relied upon the assurance of the Partnership and the Company that any financial
statements, projections, capital expenditure estimates, debt summaries, value
estimates and other information contained in the Prospectus Supplement or
otherwise provided or communicated to us were reasonably prepared and adjusted
on bases consistent with actual historical experience, are consistent with the
terms of the Partnership Agreement, and reflect the best currently available
estimates and good faith judgments; that no material changes have occurred in
the value of the Property or other information reviewed between the date such
information was provided and date of this letter; that the Partnership and the
Company are not aware of any information or facts that would cause the
information supplied to us to be incomplete or misleading; that the highest and
best use of the Property is as improved; and that all calculations were made in
accordance with the terms of the Partnership Agreement.
In addition, you have advised us that upon consummation of the Offer, the
Partnership will continue its business and operations substantially as they are
currently being conducted and that the Partnership and the Company do not have
any present plans, proposals or intentions which relate to or would result in an
extraordinary transaction, such as a merger, reorganization or liquidation
involving the Partnership; a sale of the Partnership's Properties or the sale or
transfer of a material amount of the Partnership's other assets; any changes to
the Partnership's senior management or personnel or their compensation; any
changes in the Partnership's present capitalization or distribution policy; or
any other material changes in the Partnership's structure or business.
We have not been requested to, and therefore did not: (i) select the Offer
Price or the method of determining the Offer Price in connection with the Offer;
(ii) make any recommendation to the Partnership or
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<PAGE> 168
its partners with respect to whether to accept or reject the Offer or whether to
accept the cash, Preferred OP Units or Common OP Units if the Offer is accepted;
(iii) solicit any third party indications of interest in acquiring the assets of
the Partnership or all or any part of the Partnership; or (iv) express any
opinion as to (a) the tax consequences of the proposed Offer to the Limited
Partners, (b) the terms of the Partnership Agreement or of any agreements or
contracts between the Partnership and the Company, (c) the Company's business
decision to effect the Offer or alternatives to the Offer, (d) the amount of
expenses relating to the Offer or their allocation between the Company and the
Partnership or tendering Limited Partners; (e) the relative value of the cash,
Preferred OP Units or Common OP Units to be issued in connection with the Offer;
and (f) any adjustments made to determine the Offer price and the net amounts
distributable to the Limited Partners, including but not limited to, balance
sheet adjustments to reflect the Partnership's estimate of the value of current
net working capital balances, reserve accounts, and liabilities, and adjustments
to the Offer Price for distributions made by the Partnership subsequent to the
date of the initial Offer. We are not expressing any opinion as to the fairness
of any terms of the Offer other than the Offer Price for the Units.
Our opinion is based on business, economic, real estate and capital market,
and other conditions as they existed and could be evaluated as of the date of
our analysis and addresses the Offer in the context of information available as
of the date of our analysis. Events occurring after that date could affect the
assumptions used in preparing the opinion.
The summary of the opinion set forth in the Prospectus Supplement does not
purport to be a complete description of the analyses performed, or the matters
considered, in rendering our opinion. The analyses and the summary set forth
must be considered as a whole, and selecting portions of such summary or
analyses, without considering all factors and analyses, would create an
incomplete view of the processes underlying this opinion. In rendering this
opinion, judgment was applied to a variety of complex analyses and assumptions.
The assumptions made, and the judgments applied, in rendering the opinion are
not readily susceptible to partial analysis or summary description. The fact
that any specific analysis is referred to in the Prospectus Supplement is not
meant to indicate that such analysis was given greater weight than any other
analysis.
Based upon and subject to the foregoing, it is our opinion that as of the
date of this letter the Offer Price is fair to the Limited Partners of the
Partnership from a financial point of view.
Yours truly,
Robert A. Stanger & Co., Inc.
Shrewsbury, New Jersey
March , 1999
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<PAGE> 169
APPENDIX B
DIRECTORS AND EXECUTIVE OFFICERS OF
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
AND
AIMCO-GP, INC.
The names and positions of the executive officers of Apartment Investment
and Management Company ("AIMCO"), AIMCO-GP, Inc. ("AIMCO-GP") and the directors
of AIMCO are set forth below. The two directors of AIMCO-GP are Terry Considine
and Peter Kompaniez. The two directors of the general partner of your
partnership are Peter K. Kompaniez and Patrick J. Foye. The two executive
officers of the general partner of your partnership are Patrick J. Foye,
Executive Vice President, and Timothy R. Garrick, Vice President -- Accounting.
Unless otherwise indicated, the business address of each executive officer and
director is 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222. Each
executive officer and director is a citizen of the United States of America.
<TABLE>
<CAPTION>
NAME POSITION
---- --------
<S> <C>
Terry Considine.............................. Chairman of the Board of Directors and Chief Executive
Officer
Peter K. Kompaniez........................... Vice Chairman, President and Director
Thomas W. Toomey............................. Executive Vice President -- Finance and Administration
Joel F. Bonder............................... Executive Vice President, General Counsel and
Secretary
Patrick J. Foye.............................. Executive Vice President
Paul J. McAuliffe............................ Executive Vice President -- Capital Markets
Robert Ty Howard............................. Executive Vice President -- Ancillary Services
Steven D. Ira................................ Executive Vice President and Co-Founder
Harry G. Alcock.............................. Senior Vice President -- Acquisitions
Troy D. Butts................................ Senior Vice President and Chief Financial Officer
Richard S. Ellwood........................... Director
J. Landis Martin............................. Director
Thomas L. Rhodes............................. Director
John D. Smith................................ Director
</TABLE>
<TABLE>
<CAPTION>
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS
---- ---------------------------------------------
<S> <C>
Terry Considine...................... Mr. Considine has been Chairman of the Board of Directors
and Chief Executive Officer of AIMCO and AIMCO-GP since July
1994. He is the sole owner of Considine Investment Co. and
prior to July 1994 was owner of approximately 75% of
Property Asset Management, L.L.C., Limited Liability
Company, a Colorado limited liability company, and its
related entities (collectively, "PAM"), one of AIMCO's
predecessors. On October 1, 1996, Mr. Considine was
appointed Co-Chairman and director of Asset Investors Corp.
and Commercial Asset Investors, Inc., two other public real
estate investment trusts, and appointed as a director of
Financial Assets Management, LLC, a real estate investment
trust manager. Mr. Considine has been involved as a
principal in a variety of real estate activities, including
the acquisition, renovation, development and disposition of
properties. Mr. Considine has also controlled entities
engaged in other businesses such as television broadcasting,
gasoline distribution and environmental laboratories. Mr.
Considine received a
</TABLE>
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<PAGE> 170
<TABLE>
<CAPTION>
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS
---- ---------------------------------------------
<S> <C>
B.A. from Harvard College, a J.D. from Harvard Law School
and is admitted as a member of the Massachusetts Bar.
Peter K. Kompaniez................... Mr. Kompaniez has been Vice Chairman and a director of AIMCO
since July 1994 and was appointed President of AIMCO in July
1997. Mr. Kompaniez has served as Vice President of AIMCO-GP
from July 1994 through July 1998 and was appointed President
in July 1998. Mr. Kompaniez has been a director of AIMCO-GP
since July 1994. Since September 1993, Mr. Kompaniez has
owned 75% of PDI Realty Enterprises, Inc., a Delaware
corporation ("PDI"), one of AIMCO's predecessors, and serves
as its President and Chief Executive Officer. From 1986 to
1993, he served as President and Chief Executive Officer of
Heron Financial Corporation ("HFC"), a United States holding
company for Heron International, N.V.'s real estate and
related assets. While at HFC, Mr. Kompaniez administered the
acquisition, development and disposition of approximately
8,150 apartment units (including 6,217 units that have been
acquired by the AIMCO) and 3.1 million square feet of
commercial real estate. Prior to joining HFC, Mr. Kompaniez
was a senior partner with the law firm of Loeb and Loeb
where he had extensive real estate and REIT experience. Mr.
Kompaniez received a B.A. from Yale College and a J.D. from
the University of California (Boalt Hall).
Thomas W. Toomey..................... Mr. Toomey has served as Senior Vice President -- Finance
and Administration of AIMCO since January 1996 and was
promoted to Executive Vice-President-Finance and
Administration in March 1997. Mr. Toomey has been Executive
Vice President -- Finance and Administration of AIMCO-GP
since July 1998. From 1990 until 1995, Mr. Toomey served in
a similar capacity with Lincoln Property Company ("LPC") as
well as Vice President/Senior Controller and Director of
Administrative Services of Lincoln Property Services where
he was responsible for LPC's computer systems, accounting,
tax, treasury services and benefits administration. From
1984 to 1990, he was an audit manager with Arthur Andersen &
Co. where he served real estate and banking clients. From
1981 to 1983, Mr. Toomey was on the audit staff of Kenneth
Leventhal & Company. Mr. Toomey received a B.S. in Business
Administration/Finance from Oregon State University and is a
Certified Public Accountant.
Joel F. Bonder....................... Mr. Bonder was appointed Executive Vice President and
General Counsel of AIMCO since December 8, 1997. Mr. Bonder
has been Executive Vice President and General Counsel of
AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Bonder
served as Senior Vice President and General Counsel of NHP
from April 1994 until December 1997. Mr. Bonder served as
Vice President and Deputy General Counsel of NHP from June
1991 to March 1994 and as Associate General Counsel of NHP
from 1986 to 1991. From 1983 to 1985, Mr. Bonder was with
the Washington, D.C. law firm of Lane & Edson, P.C. From
1979 to 1983, Mr. Bonder practiced with the Chicago law firm
of Ross and Hardies. Mr. Bonder received an A.B. from the
University of Rochester and a J.D. from Washington
University School of Law.
Patrick J. Foye...................... Mr. Foye has served as Executive Vice President of AIMCO and
AIMCO-GP since May 1998. Prior to joining AIMCO, Mr. Foye
was
</TABLE>
B-2
<PAGE> 171
<TABLE>
<CAPTION>
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS
---- ---------------------------------------------
<S> <C>
a partner in the law firm of Skadden, Arps, Slate, Meagher &
Flom LLP from 1989 to 1998 and was Managing Partner of the
firm's Brussels, Budapest and Moscow offices from 1992
through 1994. Mr. Foye is also Deputy Chairman of the Long
Island Power Authority and serves as a member of the New
York State Privatization Council. He received a B.A. from
Fordham College and a J.D. from Fordham University Law
School.
Paul J. McAuliffe.................... Mr. McAuliffe was appointed Executive Vice
President -- Capital Markets in February 1999. Prior to
joining AIMCO, Mr. McAuliffe was Senior Managing Director of
Secured Capital Corp and prior to that time had been a
Managing Director of Smith Barney, Inc. from 1993 to 1996,
where he was a key member of the underwriting team that led
AIMCO's initial public offering in 1994. Mr. McAuliffe was
also a Managing Director and head of the real estate group
at CS First Boston from 1990 to 1993 and he was a Principal
in the real estate group at Morgan Stanley & Co., Inc. from
1983 to 1990. Mr. McAuliffe received a B.A. from Columbia
College and an MBA from University of Virginia, Darden
School.
Robert Ty Howard..................... Mr. Howard has served as Executive Vice
President -- Ancillary Services since February 1998. Mr.
Howard was appointed Executive Vice President -- Ancillary
Services of AIMCO-GP in July 1998. Prior to joining AIMCO,
Mr. Howard served as an officer and/or director of four
affiliated companies, Hecco Ventures, Craig Corporation,
Reading Company and Decurion Corporation. Mr. Howard was
responsible for financing, mergers and acquisitions
activities, investments in commercial real estate, both
nationally and internationally, cinema development and
interest rate risk management. From 1983 to 1988, he was
employed by Spieker Properties. Mr. Howard received a B.A.
from Amherst College, a J.D. from Harvard Law School and an
M.B.A. from Stanford University Graduate School of Business.
Steven D. Ira........................ Mr. Ira is a Co-Founder of AIMCO and has served as Executive
Vice President of AIMCO since July 1994. Mr. Ira has been
Executive Vice President of AIMCO-GP since July 1998. From
1987 until July 1994, he served as President of PAM. Prior
to merging his firm with PAM in 1987, Mr. Ira acquired
extensive experience in property management. Between 1977
and 1981 he supervised the property management of over 3,000
apartment and mobile home units in Colorado, Michigan,
Pennsylvania and Florida, and in 1981 he joined with others
to form the property management firm of McDermott, Stein and
Ira. Mr. Ira served for several years on the National
Apartment Manager Accreditation Board and is a former
president of both the National Apartment Association and the
Colorado Apartment Association. Mr. Ira is the sixth
individual elected to the Hall of Fame of the National
Apartment Association in its 54-year history. He holds a
Certified Apartment Property Supervisor (CAPS) and a
Certified Apartment Manager designation from the National
Apartment Association, a Certified Property Manager (CPM)
designation from the National Institute of Real Estate
Management (IREM) and he is a member of the Board of
Directors of the National Multi-Housing Council, the
National Apartment Association
</TABLE>
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<PAGE> 172
<TABLE>
<CAPTION>
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS
---- ---------------------------------------------
<S> <C>
and the Apartment Association of Metro Denver. Mr. Ira
received a B.S. from Metropolitan State College in 1975.
Harry G. Alcock...................... Mr. Alcock has served as Vice President of AIMCO and
AIMCO-GP since July 1996, and was promoted to Senior Vice
President -- Acquisitions in October 1997, with
responsibility for acquisition and financing activities
since July 1994. From June 1992 until July 1994, Mr. Alcock
served as Senior Financial Analyst for PDI and HFC. From
1988 to 1992, Mr. Alcock worked for Larwin Development
Corp., a Los Angeles based real estate developer, with
responsibility for raising debt and joint venture equity to
fund land acquisitions and development. From 1987 to 1988,
Mr. Alcock worked for Ford Aerospace Corp. He received his
B.S. from San Jose State University.
Troy D. Butts........................ Mr. Butts has served as Senior Vice President and Chief
Financial Officer of AIMCO since November 1997. Mr. Butts
has been Senior Vice President and Chief Financial Officer
of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr.
Butts served as a Senior Manager in the audit practice of
the Real Estate Services Group for Arthur Andersen LLP in
Dallas, Texas. Mr. Butts was employed by Arthur Andersen LLP
for ten years and his clients were primarily publicly-held
real estate companies, including office and multi-family
real estate investment trusts. Mr. Butts holds a Bachelor of
Business Administration degree in Accounting from Angelo
State University and is a Certified Public Accountant.
Richard S. Ellwood................... Mr. Ellwood was appointed a Director of AIMCO in July 1994
12 Auldwood Lane and is currently Chairman of the Audit Committee. Mr.
Rumson, NJ 07660 Ellwood is the founder and President of R.S. Ellwood & Co.,
Incorporated, a real estate investment banking firm. Prior
to forming R.S. Ellwood & Co., Incorporated in 1987, Mr.
Ellwood had 31 years experience on Wall Street as an
investment banker, serving as: Managing Director and senior
banker at Merrill Lynch Capital Markets from 1984 to 1987;
Managing Director at Warburg Paribas Becker from 1978 to
1984; general partner and then Senior Vice President and a
director at White, Weld & Co. from 1968 to 1978; and in
various capacities at J.P. Morgan & Co. from 1955 to 1968.
Mr. Ellwood currently serves as a director of FelCor Suite
Hotels, Inc. and Florida East Coast Industries, Inc.
J. Landis Martin..................... Mr. Martin was appointed a Director of AIMCO in July 1994
199 Broadway and became Chairman of the Compensation Committee in March
Suite 4300 1998. Mr. Martin has served as President and Chief Executive
Denver, CO 80202 Officer and a Director of NL Industries, Inc., a
manufacturer of titanium dioxide, since 1987. Mr. Martin has
served as Chairman of Tremont Corporation, a holding company
operating through its affiliates Titanium Metals Corporation
("TIMET") and NL Industries, Inc., since 1990 and as Chief
Executive Officer and a director of Tremont since 1998. Mr.
Martin has served as Chairman of Timet, an integrated
producer of titanium, since 1987 and Chief Executive Officer
since January 1995. From 1990 until its acquisition by
Dresser Industries, Inc. ("Dresser") in 1994, Mr. Martin
served as Chairman of the Board and Chief Executive Officer
of Baroid Corporation, an oilfield services company. In
addition to Tremont, NL and TIMET,
</TABLE>
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<TABLE>
<CAPTION>
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS
---- ---------------------------------------------
<S> <C>
Mr. Martin is a director of Dresser, which is engaged in the
petroleum services, hydrocarbon and engineering industries.
Timothy R. Garrick................... Mr. Garrick has been Vice President -- Accounting of the
general partner and AIMCO since October 1, 1998. Prior to
that date, Mr. Garrick served as Vice
President -- Accounting Services of Insignia Financial Group
from June 1997 until October 1998. From 1992 until June of
1997, Mr. Garrick served as Vice President of Partnership
Accounting for Insignia Financial Group. From 1987 to 1990,
Mr. Garrick served as Investment Advisor for U.S. Shelter
Corporation. From 1984 to 1987, Mr. Garrick served as
Partnership Investment Analyst for U.S. Shelter Corporation.
From 1979 to 1984, Mr. Garrick worked on the audit staff of
Ernst & Whinney. Mr. Garrick received his B.S. Degree from
the University of South Carolina in 1979 and is a certified
public accountant.
Thomas L. Rhodes..................... Mr. Rhodes was appointed a Director of AIMCO in July 1994.
215 Lexington Avenue Mr. Rhodes has served as the President and a Director of
4th Floor National Review magazine since November 30, 1992, where he
New York, NY 10016 has also served as a Director since 1998. From 1976 to 1992
, he held various positions at Goldman, Sachs & Co. and was
elected a General Partner in 1986 and served as a General
Partner from 1987 until November 27, 1992. He is currently
Co-Chairman of the Board , Co-Chief Executive Officer and a
Director of Commercial Assets Inc. and Asset Investors
Corporation. He also serves as a Director of Delphi
Financial Group, Inc. and its subsidiaries, Delphi
International Ltd., Oracle Reinsurance Company, and the
Lynde and Harry Bradley Foundation. Mr. Rhodes is Chairman
of the Empire Foundation for Policy Research, a Founder and
Trustee of Change NY, a Trustee of The Heritage Foundation,
and a Trustee of the Manhattan Institute.
John D. Smith........................ Mr. Smith was appointed a Director of AIMCO in November
3400 Peachtree Road 1994. Mr. Smith is Principal and President of John D. Smith
Suite 831 Developments. Mr. Smith has been a shopping center
Atlanta, GA 30326 developer, owner and consultant for over 8.6 million square
feet of shopping center projects including Lenox Square in
Atlanta, Georgia. Mr. Smith is a Trustee and former
President of the International Council of Shop ping Centers
and was selected to be a member of the American Society of
Real Estate Counselors. Mr. Smith served as a Director for
Pan-American Properties, Inc. (National Coal Board of Great
Britain) formerly known as Continental Illinois Properties.
He also serves as a director of American Fidelity Assurance
Companies and is retained as an advisor by Shop System Study
Society, Tokyo, Japan.
</TABLE>
B-5
<PAGE> 174
Questions and requests for assistance or for additional copies of this
Prospectus Supplement and the Letter of Transmittal may be directed to the
Information Agent at its telephone number and address listed below. You may also
contact your broker, dealer, bank, trust company or other nominee for assistance
concerning the Offer.
The Information Agent for the offer is:
RIVER OAKS PARTNERSHIP SERVICES, INC.
<TABLE>
<S> <C> <C>
By Mail: By Overnight Courier: By Hand:
P.O. Box 2065 111 Commerce Road 111 Commerce Road
S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072
Attn.: Reorganization Dept. Attn.: Reorganization Dept.
</TABLE>
By Telephone:
TOLL FREE (888) 349-2005
or
(201) 896-1900
By Fax:
(201) 896-0910
<PAGE> 175
PROSPECTUS SUPPLEMENT
(To Prospectus dated March 26, 1999)
AIMCO Properties, L.P.
is offering to acquire units of limited partnership interest of
Sycamore Creek Associates, L.P.
in exchange for your choice of:
4.00 of our 8.0% Class Two Partnership Preferred Units;
2.75 of our Partnership Common Units; or
$100 in cash.
Generally, you will not recognize any immediate taxable gain or loss if you
exchange your units solely for our securities. However, you will recognize
taxable gain or loss if you exchange your units for cash.
We have retained Robert A. Stanger & Co., Inc. to conduct an analysis of
our offer and to render an opinion as to the fairness to you of the offer
consideration from a financial point of view.
Our offer consideration will be reduced for any distributions subsequently
made by your partnership prior to the expiration of our offer.
We will only accept a maximum of 25% of the outstanding units in response
to our offer. If more units are tendered to us, we will generally accept units
on a pro rata basis according to the number of units tendered by each person.
Our offer is not subject to any minimum number of units being tendered.
You will not pay any fees or commissions if you tender your units.
Our offer and your withdrawal rights will expire at 5:00 p.m., New York
City time, on June 4, 1999, unless we extend the deadline. You may withdraw any
tendered units at any time before we have accepted them for payment.
SEE "RISK FACTORS" BEGINNING ON PAGE S-23 OF THIS PROSPECTUS SUPPLEMENT AND
ON PAGE 2 OF THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF RISK FACTORS THAT
YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, INCLUDING THE FOLLOWING:
- We determined the offer consideration of $100 per unit without any
arms-length negotiations. Accordingly, our offer consideration may not
reflect the fair market value of your units. In August 1997, the property
owned by your partnership was appraised at $9,100,000. Based on this
appraised value, your units have a liquidation value of $1,520 per unit.
- Your general partner is a subsidiary of ours and, therefore, has
substantial conflicts of interest with respect to our offer.
- We are making this offer with a view to making a profit and there is a
conflict between our desire to purchase your units at a low price and
your desire to sell your units at a high price.
- Continuation of your partnership will result in our affiliates continuing
to receive management fees from your partnership which would not be
payable if your partnership was liquidated.
- It is possible that we may conduct a subsequent offer at a higher price
more than one year after expiration of this offer.
- Unlike your partnership, our policy is to reinvest proceeds from the sale
of our properties or refinancing of our indebtedness.
- We may change our investment, acquisition or financing policies without a
vote of our securityholders.
- If you acquire our securities, your investment will change from holding
an interest in a single property to holding an interest in our large
portfolio of properties, thereby fundamentally changing the nature of
your investment.
- We cannot predict when the property owned by your partnership may be
sold.
- Recently, Moody's Investors Service revised its outlook for AIMCO's
ratings from stable to negative.
- There is currently no market for the Partnership Preferred Units or
Partnership Common Units.
Neither the Securities and Exchange Commission nor any State Securities
Commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this Prospectus Supplement or the accompanying
Prospectus. Any representation to the contrary is a criminal offense.
The Attorney General of the State of New York has not passed on or endorsed
the merits of this offer. Any representation to the contrary is unlawful.
March 26, 1999
<PAGE> 176
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
SUMMARY........................................ S-1
The Offer.................................... S-1
The AIMCO Operating Partnership.............. S-1
Affiliation with your General Partner........ S-1
Risk Factors................................. S-1
Background and Reasons for the Offer......... S-6
Valuation of Units........................... S-9
Fairness of the Offer........................ S-10
Stanger Analysis............................. S-11
Your Partnership............................. S-11
Terms of the Offer........................... S-12
Federal Income Tax Consequences.............. S-14
Comparison of Your Partnership and the AIMCO
Operating Partnership...................... S-14
Comparison of Your Units and AIMCO OP Units.. S-15
Conflicts of Interest........................ S-15
Source and Amount of Funds and Transactional
Expenses................................... S-16
Summary Financial Information of AIMCO
Properties, L.P............................ S-17
Summary Pro Forma Financial and Operating
Information of AIMCO Properties, L.P....... S-19
Summary Financial Information of Sycamore
Creek Associates, L.P...................... S-21
Comparative Per Unit Data.................... S-21
THE AIMCO OPERATING PARTNERSHIP................ S-22
RISK FACTORS................................... S-23
Risks to Unitholders Who Tender Their Units
in the Offer............................... S-23
Offer Consideration Not Based on Third
Party Appraisal or Arms-Length
Negotiation.............................. S-23
Offer Consideration May Not Represent Fair
Market Value............................. S-23
Recent Appraisal Indicates a Higher
Valuation Per Unit....................... S-23
Offer Consideration Does Note Reflect
Future Prospects......................... S-23
Offer Consideration Based on Our Estimate
of Liquidation Proceeds.................. S-23
Offer Consideration May Be Less Than
Liquidation Value........................ S-23
Holding Units May Result in Greater Future
Value.................................... S-23
Conflicts of Interest with Respect to the
Offer.................................... S-23
Conflicts of Interest Relating to
Management Fees.......................... S-24
Possible Subsequent Offer at a Higher
Price.................................... S-24
Possible Recognition of Taxable Gain on a
Sale of Your Units....................... S-24
Fairness Opinion of Third Party Relied on
Information We Provided.................. S-25
Loss of Future Distributions from Your
Partnership.............................. S-25
Possible Effect of the Other Exchange
Offers on Us............................. S-25
Potential Delay in Payment................. S-25
Risks to Unitholders Exchanging Units for OP
Units in the Offer......................... S-25
Fundamental Change in Nature of
Investment............................... S-25
Fundamental Change in Number of Properties
Owned.................................... S-25
Lack of Trading Market for OP Units........ S-25
Uncertain Future Distributions............. S-26
Possible Reduction in Required
Distributions on Preferred OP Units...... S-26
Possible Redemption of Preferred Stock..... S-26
Possible Recognition of Taxable Gains on OP
Units.................................... S-26
Limitations on Effecting a Change of
Control.................................. S-26
Limitation on Transfer of OP Units......... S-26
Limited Voting Rights of Holders of OP
Units.................................... S-26
Market Prices for AIMCO's Securities May
Fluctuate................................ S-26
</TABLE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Litigation Associated with Partnership
Acquisitions............................. S-26
Dilution of Interests of Holders of OP
Units.................................... S-27
Risks to Unitholders Who Do Not Tender Their
Units in the Offer......................... S-27
Possible Increase in Control of Your
Partnership by Us........................ S-27
Recognition of Gain Resulting from Possible
Future Reduction in Your Partnership
Liabilities.............................. S-27
Possible Termination of Your Partnership
for Federal Income Tax Purposes.......... S-27
Risk of Inability to Transfer Units for
12-Month Period.......................... S-27
Possible Change in Time Frame Regarding
Sale of Property......................... S-27
SPECIAL FACTORS TO CONSIDER.................... S-28
BACKGROUND AND REASONS FOR THE OFFER........... S-28
Background of the Offer...................... S-28
Alternatives Considered...................... S-30
Expected Benefits of the Offer............... S-31
Disadvantages of the Offer................... S-32
VALUATION OF UNITS............................. S-34
FAIRNESS OF THE OFFER.......................... S-36
Position of the General Partner of Your
Partnership With Respect to the Offer;
Fairness................................... S-36
Fairness to Unitholders who Tender their
Units...................................... S-37
Fairness to Unitholders who do not Tender
their Units................................ S-38
Comparison of Consideration to Alternative
Consideration.............................. S-38
Allocation of Consideration.................. S-42
STANGER ANALYSIS............................... S-42
Experience of Stanger........................ S-42
Summary of Materials Considered.............. S-43
Summary of Reviews........................... S-44
Review of Appraisal.......................... S-46
Conclusions.................................. S-47
Assumptions, Limitations and
Qualifications............................. S-47
Compensation and Material Relationships...... S-48
YOUR PARTNERSHIP............................... S-48
General...................................... S-48
Your Partnership and its Property............ S-48
Property Management.......................... S-49
Investment Objectives and Policies; Sale or
Financing of Investments................... S-49
Capital Replacement.......................... S-50
Borrowing Policies........................... S-50
Competition.................................. S-50
Legal Proceedings............................ S-50
History of the Partnership................... S-50
Fiduciary Responsibility of the General
Partner of Your Partnership................ S-51
Distributions and Transfers of Units......... S-51
Beneficial Ownership of Interests in Your
Partnership................................ S-51
Compensation Paid to the General Partner and
its Affiliates............................. S-52
SELECTED FINANCIAL INFORMATION OF SYCAMORE
CREEK ASSOCIATES, L.P........................ S-53
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OF YOUR PARTNERSHIP.......................... S-54
THE OFFER...................................... S-57
Terms of the Offer; Expiration Date.......... S-57
Acceptance for Payment and Payment for
Units...................................... S-57
</TABLE>
i
<PAGE> 177
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Procedure for Tendering Units................ S-58
Withdrawal Rights............................ S-61
Extension of Tender Period; Termination;
Amendment.................................. S-61
Proration.................................... S-62
Fractional OP Units.......................... S-62
Future Plans of the AIMCO Operating
Partnership................................ S-62
Voting by the AIMCO Operating Partnership.... S-63
Dissenters' Rights........................... S-63
Conditions of the Offer...................... S-63
Effects of the Offer......................... S-66
Certain Legal Matters........................ S-66
Fees and Expenses............................ S-68
Accounting Treatment......................... S-68
FEDERAL INCOME TAX CONSEQUENCES................ S-69
Tax Opinions................................. S-69
Tax Consequences of Exchanging Units Solely
for OP Units............................... S-70
Disguised Sales.............................. S-71
Tax Consequences of Exchanging Units for Cash
and OP Units............................... S-71
Tax Consequences of Exchanging Units Solely
for Cash................................... S-72
Adjusted Tax Basis........................... S-72
Character of Gain or Loss Recognized Pursuant
to the Offer............................... S-72
Passive Activity Losses...................... S-73
Tax Reporting................................ S-73
Foreign Offerees............................. S-73
Tax Consequences of a Termination of Your
Partnership................................ S-73
COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO
OPERATING PARTNERSHIP........................ S-75
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-83
</TABLE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
DESCRIPTION OF PREFERRED OP UNITS.............. S-88
General...................................... S-88
Ranking...................................... S-88
Distributions................................ S-88
Allocation................................... S-89
Liquidation Preference....................... S-89
Redemption................................... S-90
Voting Rights................................ S-90
Restrictions on Transfer..................... S-91
DESCRIPTION OF CLASS I PREFERRED STOCK......... S-91
COMPARISON OF PREFERRED OP UNITS AND CLASS I
PREFERRED STOCK.............................. S-93
CONFLICTS OF INTEREST.......................... S-97
Conflicts of Interest with Respect to the
Offer...................................... S-97
Conflicts of Interest that Currently Exist
for Your Partnership....................... S-97
Competition Among Properties................. S-97
Features Discouraging Potential Takeovers.... S-97
Future Exchange Offers....................... S-98
SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL
EXPENSES..................................... S-98
LEGAL MATTERS.................................. S-98
EXPERTS........................................ S-98
INDEX TO FINANCIAL STATEMENTS.................. F-1
PRO FORMA FINANCIAL INFORMATION OF AIMCO
PROPERTIES, L.P. ............................ P-1
OPINION OF ROBERT A. STANGER & CO., INC. ...... A-1
DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT
INVESTMENT AND MANAGEMENT COMPANY AND
AIMCO-GP, INC. .............................. B-1
</TABLE>
ii
<PAGE> 178
SUMMARY
This summary highlights some of the information in this Prospectus
Supplement and the accompanying Prospectus.
THE OFFER
In exchange for each of your units, we are offering you a choice of:
- 4.00 of our Class Two Partnership Preferred Units;
- 2.75 of our Partnership Common Units; or
- $100 in cash;
in each case, subject to reduction for any distribution subsequently made by
your partnership prior to the expiration of our offer.
We will accept a maximum of 25% of the outstanding units in response to our
offer. Our offer is not subject to any minimum number of units being tendered.
Our offer will expire at 5:00 p.m., New York City time, on June 4, 1999,
unless we extend the deadline.
For the five years ended December 31, 1998, your partnership paid no
distributions.
THE AIMCO OPERATING PARTNERSHIP
AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts
substantially all of the operations of Apartment Investment and Management
Company, or "AIMCO." AIMCO is a real estate investment trust that owns and
manages multifamily apartment properties throughout the United States. Through
its wholly owned subsidiary, AIMCO-GP, Inc. ("AIMCO GP"), AIMCO acts as the sole
general partner of the AIMCO Operating Partnership. As of December 31, 1998,
AIMCO-GP and another AIMCO subsidiary, AIMCO-LP, Inc., a limited partner of the
AIMCO Operating Partnership (the "Special Limited Partner"), owned approximately
an 83% interest in the AIMCO Operating Partnership. As of December 31, 1998, our
portfolio of owned or managed properties included 379,363 apartment units in
2,147 properties located in 49 states, the District of Columbia and Puerto Rico.
Based on apartment unit data compiled by the National Multi Housing Council, we
believe that we are one of the largest owners and managers of multifamily
apartment properties in the United States. As of December 31, 1998, we:
- owned or controlled 63,086 units in 242 apartment properties;
- held an equity interest in 170,243 units in 902 apartment properties; and
- managed 146,034 units in 1,003 apartment properties for third party
owners and affiliates.
Our principal executive offices are located at 1873 South Bellaire Street,
Denver, Colorado 80222, and our telephone number is (303) 757-8101.
AFFILIATION WITH YOUR GENERAL PARTNER
As a result of our October 1, 1998 merger with Insignia Financial Group,
Inc. and our February 26, 1999 merger with Insignia Properties Trust, we
acquired a 100% ownership interest in the general partner of your partnership,
Jacques-Miller Associates, and the company that manages the property owned by
your partnership.
RISK FACTORS
You should carefully consider the risks set forth under "Risk Factors"
beginning on page S-24 of this Prospectus Supplement and on page 2 of the
accompanying Prospectus. The following highlights some of the
S-1
<PAGE> 179
risks associated with our offer and the disadvantages of the offer to you and
should be considered when you review "Summary -- Background and Reasons for the
Offer -- Expected Benefits of the Offer":
RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER
OFFER CONSIDERATION NOT BASED ON THIRD PARTY APPRAISAL OR ARMS-LENGTH
NEGOTIATION. We did not use any third-party appraisal or valuation to determine
the value of any property owned by your partnership. We established the terms of
our offer, including the exchange ratios and the cash consideration, without any
arms-length negotiations.
OFFER CONSIDERATION MAY NOT REPRESENT FAIR MARKET VALUE. There is no
established or regular trading market for your units, nor is there another
reliable standard for determining the fair market value of your units. The offer
consideration does not necessarily reflect the price that you would receive in
an open market for your units. Such prices could be higher or lower than our
offer consideration.
RECENT APPRAISAL INDICATES A HIGHER VALUATION PER UNIT. In August 1997, an
independent appraiser valued the property on an unencumbered basis to be
$9,100,000. Based on this appraised value, your units have a liquidation value
of $1,520 per unit. In determining our offer consideration, we estimate your
property to be worth $8,581,000, less approximately $1,365,920 of deferred
maintenance and investment. Therefore, it is possible that a sale of the
property could result in your receiving more per unit than in our offer and you
would receive more than our offer if the property was actually sold for such
appraised value.
OFFER CONSIDERATION DOES NOT REFLECT FUTURE PROSPECTS. Our offer
consideration is based on your partnership's historical property income. It does
not ascribe any value to potential future improvements in the operating
performance of your partnership's property.
OFFER CONSIDERATION BASED ON OUR ESTIMATE OF LIQUIDATION PROCEEDS. The
offer consideration represents only our estimate of the amount you would receive
if we liquidated the partnership. In determining the liquidation value, we used
the direct capitalization method to estimate the value of your partnership's
property because we think a prospective purchaser of the property would value
the property using this method. In doing so, we applied a capitalization rate to
your partnership's property income for the year ended December 31, 1997. In
determining the appropriate capitalization rate, we considered your
partnership's results of operations since December 31, 1997. If property income
for a different period or a different capitalization rate was used, a higher
valuation could result. Other methods of valuing your units could also result in
a higher valuation.
OFFER CONSIDERATION MAY BE LESS THAN LIQUIDATION VALUE. The actual proceeds
obtained from a liquidation are highly uncertain and could be more or less than
our estimate. Accordingly, our offer consideration could be less than the net
proceeds that you would realize upon an actual liquidation of your partnership.
Even if our cash offer consideration is equal to liquidation value, if you
accept OP Units, you may not ultimately receive an amount equal to the cash
offer consideration when you sell such OP Units or any AIMCO securities you may
receive upon redemption of such OP Units.
HOLDING UNITS MAY RESULT IN GREATER FUTURE VALUE. You might receive more
value if you retain your units until your partnership is liquidated.
CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is a
subsidiary of ours and, therefore, has substantial conflicts of interest with
respect to our offer. We are making this offer with a view to making a profit.
There is a conflict between our desire to purchase your units at a low price and
your desire to sell your units at a high price.
CONFLICTS OF INTEREST RELATING TO MANAGEMENT FEES. Since our subsidiaries
receive fees for managing your partnership and its property, a conflict of
interest exists between our continuing the partnership and receiving such fees,
and the liquidation of the partnership and the termination of such fees.
POSSIBLE SUBSEQUENT OFFER AT A HIGHER PRICE. It is possible that we may
make a subsequent offer at a higher price, but not earlier than one year after
expiration of this offer. Such a decision will depend on, among
S-2
<PAGE> 180
other things, the performance of your partnership, prevailing interest rates,
and our interest in acquiring additional limited partnership interests.
POSSIBLE RECOGNITION OF TAXABLE GAIN ON A SALE OF YOUR UNITS. In general,
if you exchange your units solely for our OP Units, it will not be a taxable
transaction. If you sell your units for cash, you will recognize taxable gain or
loss in an amount equal to the difference between the amount realized on the
sale and your adjusted tax basis in your units. If you exchange your units for
both cash and OP Units, it will be treated, for Federal income tax purposes, as
a partial taxable sale of such units for cash and as a partial tax-free
contribution of such units to our operating partnership. If you tender your
units for cash or for both cash and OP Units, the "amount realized" will be
measured by the sum of the cash received plus the portion of your partnership's
liabilities allocated to the units sold for Federal income tax purposes. To the
extent that the amount of cash received plus the allocable share of your
partnership's liabilities exceeds your tax basis for the units sold, you will
recognize gain. Consequently, your tax liability resulting from such gain could
exceed the amount of cash you receive from us.
The particular tax consequences of the offer to you will depend upon a
number of factors related to your individual tax situation, including your tax
basis in your units, whether you dispose of all of your units in your
partnership, and whether the "passive loss" rules apply to your investments. You
should review "Federal Income Tax Consequences" in this Prospectus Supplement
and "Federal Income Taxation of AIMCO and AIMCO Stockholders," "Federal Income
Taxation of the AIMCO Operating Partnership and OP Unitholders" and "Other Tax
Consequences" in the accompanying Prospectus. Because the income tax
consequences of an exchange of units will not be the same for everyone, you
should consult your tax advisor before determining whether to tender your units
pursuant to our offer.
FAIRNESS OPINION OF THIRD PARTY RELIED ON INFORMATION WE PROVIDED. Robert
A. Stanger & Co.'s analysis of our offer and opinion as to the fairness to you
of our offer consideration from a financial point of view relies on information
prepared by the general partner of your partnership (which is our subsidiary).
No tests of the underlying data were performed, and no independent appraisal was
conducted. Because the fairness opinion will not be updated, changes may occur
from the date of the fairness opinion that might affect the conclusions
expressed in the opinion.
LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. For any units that we
acquire from you, you will not receive any future distributions from your
partnership's operating cash flow or upon a sale of property owned by your
partnership or a refinancing of any of its debt. If you tender your units in
exchange for OP Units, you will be entitled to future distributions from us from
our operating cash flow and upon a dissolution, liquidation or wind-up of the
AIMCO Operating Partnership.
POSSIBLE EFFECT OF THE OTHER EXCHANGE OFFERS ON US. Concurrently with this
offer, we are making or intend to make similar offers to investors in
approximately 90 other limited partnerships. If all of these offers had been
completed by December 31, 1997, our net income for the nine months ended
September 30, 1998 would have been $24,703,000 instead of $41,493,000, based on
the assumptions included in the Pro Forma Financial Statements. If we borrow
funds for the cash consideration for these offers, our interest costs would
increase which could adversely affect our future earnings. If all units in all
the offers were purchased for cash and we borrowed all the funds, at current
interest rates, our interest expense would increase by $3,064,000 per year. See
"Pro Forma Financial Information of AIMCO Properties, L.P."
POTENTIAL DELAY IN PAYMENT. We reserve the right to extend the period of
time during which our offer is open and thereby delay acceptance for payment of
any tendered units. The offer may be extended indefinitely and no payment will
be made in respect of tendered units until the expiration of the offer and the
acceptance of units for payment.
RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER
FUNDAMENTAL CHANGE IN NATURE OF INVESTMENT. If you tender your units in
exchange for our OP Units, you will have changed fundamentally the nature of
your investment from (i) a partnership that distributes to its partners the
proceeds from a sale of a property or a refinancing of its indebtedness, to (ii)
a partnership
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that reinvests the proceeds from sales of properties and refinancings of its
indebtedness. You will have changed from a small partnership with a partnership
termination date of December 31, 2008 to a much larger partnership with a
partnership termination date of 2093.
FUNDAMENTAL CHANGE IN NUMBER OF PROPERTIES OWNED. If you tender your units
for our OP Units, you will have changed your investment from an interest in a
partnership that owns and manages one property to an interest in a partnership
that invests in and manages a large portfolio of properties.
LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP
Units. In addition, the AIMCO Operating Partnership's agreement of limited
partnership restricts the transferability of OP Units. We have no plans to list
the OP Units on a securities exchange. It is unlikely that any person will make
a market in the OP Units, or that an active market for the OP Units will
develop.
UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes
quarterly distributions based on its available cash, there can be no assurance
regarding the amounts of available cash that our operating partnership will
generate or the portion that we will choose to distribute.
POSSIBLE REDUCTION IN REQUIRED DISTRIBUTIONS ON PREFERRED OP UNITS. On and
after March 1, 2005, we may reduce the rate of distributions required to be paid
on the Preferred OP Units, thus reducing the rate of return and possibly
encouraging you to redeem such units.
POSSIBLE REDEMPTION OF PREFERRED STOCK. On and after March 1, 2005, we may
redeem each share of Class I Preferred Stock for $25, plus any accumulated,
accrued and unpaid dividends, possibly forcing you to sell such shares to AIMCO
or to sell in the open market at a possibly lower price per share than would
have occurred without the redemption. If, for example, after five years we
redeemed the Class I Preferred Stock for $25 per share, you will have received
the present value equivalent of the cash consideration of our offer (assuming
annual distributions of $2.00 on each Preferred OP Unit, a discount rate of 8%
and without giving effect to the potential tax deferral associated with
receiving OP Units instead of cash).
POSSIBLE RECOGNITION OF TAXABLE GAIN ON OP UNITS. There are tax risks
associated with the acquisition, retention and disposition of OP Units. Although
your general partner (which is our subsidiary) has no present intention to
liquidate or sell your partnership's property or prepay the current mortgage on
the property within any specified time period, any such action in the future
generally will require you to fully recognize any deferred taxable gain if you
exchange your units for OP Units. See "Federal Income Taxation of the AIMCO
Operating Partnership and OP Unitholders" in the accompanying Prospectus.
LIMITATIONS ON EFFECTING A CHANGE OF CONTROL. Our charter has restrictions
on the ownership of our equity securities in order to comply with certain REIT
tax requirements. The limited partners of the AIMCO Operating Partnership are
unable to remove the general partner of the AIMCO Operating Partnership or to
vote in the election of AIMCO's directors unless they own shares of AIMCO. As a
result, our limited partners and stockholders are limited in their ability to
effect a change of control of the AIMCO Operating Partnership and AIMCO.
LIMITATION ON TRANSFER OF OP UNITS. Investors in our partnership must hold
the OP Units for one year, subject to exceptions. Thereafter transfers may be
made subject to applicable transfer restrictions.
LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating
Partnership is managed and operated by its general partner. Unlike the holders
of common stock in a corporation, holders of OP Units have only limited voting
rights on matters affecting the AIMCO Operating Partnership's business. Holders
of OP Units have no right to elect the general partner on an annual or other
continuing basis, and the general partner may not be removed by holders of
limited partnership interests. As a result, holders of OP Units have limited
influence on matters affecting the operation of the AIMCO Operating Partnership
and third parties may find it difficult to attempt to gain control or influence
the activities of our operating partnership. Such matters affecting the
operation of the AIMCO Operating Partnership include liquidation and
distribution policies, property purchases, and potential mergers or
acquisitions.
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MARKET PRICES FOR AIMCO'S SECURITIES MAY FLUCTUATE. We cannot predict the
prices at which our stock will trade in the future. Recently, there have been
fluctuations in the trading prices for many REIT equity securities, including
ours.
LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire
interests in limited partnerships that own apartment properties. In some cases
(such as your partnership), we have acquired the general partner of a
partnership and then made an offer to acquire the limited partners' interests in
the partnership. There is a risk that we will be subject to litigation based on
claims that the general partner has breached its fiduciary duties to its limited
partners or that the transaction violates the relevant partnership agreement. As
a result, we may incur costs associated with defending or settling such
litigation or paying any judgment if we lose. As of the present time, no limited
partners of your partnership have initiated lawsuits on such grounds.
DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited
number of additional OP Units or other securities for such consideration and on
such terms as we may establish, without the approval of the holders of OP Units.
Such securities could have priority over the OP Units as to cash flow,
distributions and liquidation proceeds. The effect of any such issuance may be
to dilute the interests of holders of OP Units.
RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER
POSSIBLE INCREASE IN CONTROL OF YOUR PARTNERSHIP BY US. As a result of the
offer, we may increase our ability to influence voting decisions with respect to
your partnership. However, we will not be able to control voting decisions
unless we acquire more units in another transaction, which cannot take place for
at least one year after expiration of the offer. Also, removal of your general
partner (which is our subsidiary) or the manager of any property owned by your
partnership may become more difficult or impossible without our consent or
approval.
RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR
PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your
partnership's liabilities is treated, for Federal income tax purposes, as a
deemed cash distribution. Although your general partner (which is our
subsidiary) has no current plan or intention to reduce the liabilities of your
partnership, it is possible that future economic, market, legal, tax or other
considerations may cause your general partner to reduce the liabilities of your
partnership. If the liabilities of your partnership were to be reduced, and you
do not tender all of your units pursuant to our offer, you will be treated as
receiving a hypothetical distribution of cash resulting from a decrease in your
share of the liabilities of your partnership. Any such hypothetical distribution
of cash would be treated as a nontaxable return of capital to the extent of your
adjusted tax basis in your units and thereafter as gain.
POSSIBLE TERMINATION OF YOUR PARTNERSHIP FOR FEDERAL INCOME TAX
PURPOSES. If there is a sale or exchange of 50% or more of the total interest in
capital and profits of your partnership within any 12-month period, including
sales or exchanges resulting from our offer, your partnership will terminate for
Federal income tax purposes. Any such termination may, among other things,
subject the assets of your partnership to longer depreciable lives than those
currently applicable. This would generally decrease the annual average
depreciation deductions allocable to you for a number of years if you do not
tender all of your units (thereby increasing the taxable income allocable to
your units in each such year), but would have no effect on the total
depreciation deductions available over the useful lives of the assets of your
partnership. Any such termination may also change (and possibly shorten) your
holding period with respect to your units that you choose to retain. Gain
recognized by you on the disposition of retained units with a holding period of
12 months or less may be classified as short-term capital gain and subject to
taxation at ordinary income tax rates.
RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's
agreement of limited partnership prohibits any transfer of units without the
consent of your general partner (which is our subsidiary). Such consent may be
withheld by your general partner in its sole discretion. Your general partner
may withhold its consent if such transfer would result in the termination of
your partnership for tax purposes which would occur if 50% or more of the total
interest in your partnership is transferred within a 12-month period. If we
acquire a significant percentage of the interest in your partnership, your
general partner may not consent to a transfer for a 12-month period following
our offer.
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POSSIBLE CHANGE IN TIME FRAME REGARDING SALE OF PROPERTY. It is not known
when the property owned by your partnership may be sold. Therefore, there may be
no way to liquidate your investment in the partnership in the future until the
property is sold and your partnership is liquidated. You may continue to have to
hold the units not exchanged in this offer for an indefinite period of time. The
partnership currently owns one property. The general partner of your partnership
continually considers whether the property should be sold or otherwise disposed
of after consideration of relevant factors, including prevailing economic
conditions, availability of favorable financing and tax considerations, with a
view to achieving maximum capital appreciation for your partnership. We cannot
predict when the property will be sold or otherwise disposed of. However, there
is no current plan or intention to sell the property in the near future.
BALLOON PAYMENTS. Your partnership has approximately $6,259,792 of balloon
payments due on its mortgage debt in November 2002. Your partnership will have
to refinance such debt or sell its property prior to the balloon payment dates,
or it will be in default and could lose the property to foreclosure.
BACKGROUND AND REASONS FOR THE OFFER
Background of the Offer
We are in the business of acquiring direct and indirect interests in
apartment properties such as the property owned by your partnership. Our offer
provides us with an opportunity to increase our ownership interest in your
partnership's property while providing you and other investors with an
opportunity to liquidate your current investment and to invest in our OP Units
or receive cash, or to retain your units.
On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing
so, we acquired a 51% ownership interest in Insignia Properties Trust, which has
a 100% ownership interest in the general partner of your partnership and the
company that manages the property owned by your partnership. On February 26,
1999, we acquired the remaining 49% interest in Insignia Properties Trust in a
merger transaction. One of the consequences of the merger with Insignia is to
allow us to make the offer and, if successful, to increase our ownership in your
partnership.
We contacted Robert A. Stanger & Co., Inc. in August 1998 to discuss the
possibility of Stanger providing an independent fairness opinion for our offer
consideration. We chose Stanger based on Stanger's expertise and strong
reputation in this area of work. On August 28, 1998, we entered into an
agreement with Stanger to provide such a fairness opinion for your partnership
and other partnerships.
Alternatives Considered
The following is a brief discussion of the benefits and disadvantages of
alternatives to our offer that could have been pursued by your general partner
(which is our subsidiary):
Liquidation. One alternative to our offer would be for your partnership
to sell its assets, distribute the net liquidation proceeds to its partners
in accordance with your partnership's agreement of limited partnership, and
then dissolve. Partners would be at liberty to use the net liquidation
proceeds after taxes for investment, business, personal or other purposes,
at their option. If your partnership were to sell its assets and liquidate,
you and your partners would not need to rely upon capitalization of income
or other valuation methods to estimate the fair market value of your
partnership's assets. Instead, such assets would be valued through
negotiations with prospective purchasers. However, a liquidating sale of
your partnership's property would be a taxable event for you and your
partners and could result in significant amounts of taxable income to you
and your partners.
Continuation of Your Partnership Without the Offer. A second alternative
would be for your partnership to continue its business without our offer. A
number of advantages could result from the continued operation of your
partnership. Given improving rental market conditions, the level of
distributions might increase over time. We believe it is possible that the
private resale market for apartment and retail properties could improve
over time, making a sale of your partnership's property in a private
transaction at some point in the future a more viable option than it is
currently. However, there are several risks and disadvantages that result
from continuing the operations of your partnership
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without the offer. If your partnership were to continue operating as
presently structured, it could be forced to borrow on terms that could
result in net losses from operations. Your partnership's mortgage notes are
due in November 2002 and require balloon payments totaling $6,259,792. Your
partnership currently has adequate sources of cash to finance its
operations on both a short term and long term basis. In addition,
continuation of your partnership without the offer would deny you and your
partners the benefits that your general partner (which is our subsidiary)
expects to result from the offer. For example, a partner of your
partnership would have no opportunity for liquidity unless he were to sell
his units in a private transaction. Any such sale would likely be at a very
substantial discount from the partner's pro rata share of the fair market
value of your partnership's property. There is currently no market for the
Preferred OP Units or Common OP Units.
Expected Benefits of the Offer
We are in the business of acquiring direct and indirect interests in
apartment properties such as the property owned by your partnership. The offer
provides us with an opportunity to increase our ownership interest in your
partnership's property while providing you and other investors with an
opportunity to retain or liquidate your investment in your partnership for cash
or for units in the AIMCO Operating Partnership.
There are four principal advantages of exchanging your units for Preferred
OP Units:
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Preferred OP Units.
- Enhanced Liquidity After One Year. While holders of the Preferred OP
Units must hold such units for one year, subject to certain exceptions,
after a one-year holding period, you may choose to redeem your Preferred
OP Units and receive, at our option, shares of AIMCO's Class A Common
Stock or cash. After a two-year holding period, if you choose to redeem
your Preferred OP Units, you may receive, at our option, cash, shares of
AIMCO's Class I Preferred Stock or shares of AIMCO's Class A Common
Stock. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred
Stock is expected to be, listed and traded on the NYSE.
- Preferred Quarterly Distributions. Your partnership paid no distributions
for the fiscal year ended December 31, 1998. Holders of Preferred OP
Units will be entitled to receive quarterly distributions of $0.50 per
unit (equivalent to $2.00 on an annualized basis) before any
distributions are paid to holders of Common OP Units. This is equivalent
to a distribution of $8.00 per year on the number of Preferred OP Units
you will receive in exchange for each of your partnership units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
There are five principal advantages of exchanging your units for Common OP
Units:
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Common OP Units.
- Enhanced Liquidity After One Year. While the holders of the Common OP
Units must hold such units for one year, subject to certain exceptions,
after a one-year holding period, you may choose to redeem your Common OP
Units and receive, at our option, shares of AIMCO's Class A Common Stock
(on a one-for-one basis, subject to adjustment in certain circumstances)
or an equivalent amount of cash. AIMCO's Class A Common Stock is listed
and traded on the NYSE.
- Quarterly Distributions. Your partnership paid no distributions for the
fiscal year ended December 31, 1998. In 1998, we paid quarterly
distributions on the Common OP Units totalling $2.25 per unit. In January
1999, we increased our distribution rate on each of the Common OP Units
to $2.50 on an annual basis. See "The AIMCO Operating Partnership."
Assuming no change in the level of our distributions, this is equivalent
to a distribution of $6.88 per year on the number of Common OP Units you
will receive in exchange for each of your partnership units.
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- Growth Potential. Our assets, organizational structure and access to
capital enables us to pursue acquisition and development opportunities
that are not available to your partnership. You would have the
opportunity to participate in the growth of our enterprise and would
benefit from any future increase in the AIMCO stock price and from any
future increase in distributions on the Common OP Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
The principal advantage if you tender your units for cash is immediate
liquidity. However, tendering your units for cash may cause you to recognize
taxable gain for Federal income tax purposes.
Disadvantages of the Offer.
The principal disadvantages of the offer are:
- Lack of Independent Price Determination. We determined the offer price
and the terms of the offer, including the exchange ratio for Common OP
Units and Preferred OP Units, and the terms of the Preferred OP Units and
the Class I Preferred Stock. The terms of the offer and the nature of the
securities could differ if they were subject to independent third party
negotiations. We determined the offering price and asked Stanger to
determine if the price was fair. We did not ask Stanger to determine a
fair price.
- No Separate Representation of Limited Partners. In structuring the offer
and determining the offer consideration, no one separately represented
the interests of the limited partners. Although we have a fiduciary duty
to the limited partners, we also have conflicting responsibilities to our
equity holders. We did not appoint, or ask the limited partners to
appoint, a party to represent only their interests.
- No Proposal to Sell the Property. We are not proposing to try to
liquidate the partnership and sell the partnership's property and
distribute the net proceeds. An arms-length sale of such property after
offering it for sale through licensed real estate brokers might be a
better way to determine the true value of the property rather than the
method we chose. The sale of the property and the liquidation of the
partnership might result in greater pretax cash proceeds to you than our
offer.
- OP Units. OP Units lack a public market, have transfer restrictions and
must be held for one year before they can be redeemed by a holder. The
ultimate return on the OP Units is directly tied to the future price of
AIMCO's Class A Common Stock or Class I Preferred Stock. You could
ultimately receive less for your OP Units than the cash price in our
offer. Further, on or after March 1, 2005, we may redeem the Class I
Preferred Stock for $25 per share.
- Continuation of the Partnership. We are proposing to continue to operate
your partnership and not to attempt to liquidate it at the present time.
Thus, our offer does not satisfy any expectation that you would receive
the return of your investment in the partnership through a sale of the
property at the present time. At the current time we do not believe that
a sale of the property would be advantageous given market conditions, the
condition of the property and tax considerations. In particular, we
considered the changes in the local rental market, the potential for
appreciation in the value of the property and the tax consequences to you
and your partners upon a sale of the property.
- Possible Recognition of Taxable Gain. If you exercise your redemption
right with respect to the OP Units within two years of the date that you
transfer your units to the AIMCO Operating Partnership, your exchange of
units for OP Units and cash could be treated as a disguised sale of your
units and you would be required to recognize gain or loss in the year of
the exchange on such disguised sale. See "Federal Income Tax
Consequences -- Disguised Sales."
For a description of certain risks of our offer, see "Risk Factors."
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VALUATION OF UNITS
We determined the offer consideration by estimating the value of the
property owned by your partnership using the direct capitalization method. This
method involves applying a capitalization rate to your partnership's annual
property income. A capitalization rate is a percentage (rate of return),
commonly applied by purchasers of residential real estate to property income to
determine the present value of income property. The lower the capitalization
rate utilized the higher the value produced, and the higher the capitalization
rate utilized the lower the value produced. We used your partnership's property
income for the fiscal year ended December 31, 1997. However, in determining the
appropriate capitalization rate, we considered the partnership's property income
since December 31, 1997. Our method for selecting a capitalization rate begins
with each property being assigned a location and condition rating (e.g., "A" for
excellent, "B" for good, "C" for fair, and "D" for poor). We have rated your
property's location A (excellent) and its condition C (fair). Generally, we
assign an initial capitalization rate of 10.25% to properties in this category.
We then adjust the capitalization rate based on whether the mortgage debt that
the property is subject to bears interest at a rate above or below 7.5% per
annum. Generally, for every 0.5% in excess of 7.5%, the capitalization rate
would be increased by 0.25%. Your property's mortgage debt bears interest at
7.60% per annum, which resulted in an increase from the initial capitalization
rate of 0.25%. We also considered any changes in your partnership's property
income from 1997 to 1998. Because your partnership's property income in 1998
remained relatively unchanged compared to 1997, we made no further revision of
the capitalization rate, resulting in a final capitalization rate of 10.50%. The
evaluation of a property's location and condition, and the determination of an
appropriate capitalization rate for a property, is subjective in nature, and
others evaluating the same property might use a different capitalization rate
and derive a different property value. Although the direct capitalization method
is a widely-accepted way of valuing real estate, there are a number of other
methods available to value real estate, each of which may result in different
valuations of a property. Further, in applying the direct capitalization method,
others may make different assumptions and obtain different results. The proceeds
that you would receive if you sold your units to someone else or if your
partnership were actually liquidated might be higher or lower than our offer
consideration. We believe that if your partnership was liquidated there would be
not enough value to fully discharge all known liabilities. We have, however,
decided to offer you $100 per unit. We determined your partnership's value as
follows:
<TABLE>
<S> <C>
Property income............................................. $ 901,000
Capitalization rate......................................... 10.50%
-----------
Gross valuation of partnership property..................... $ 8,581,000
Plus: Cash and cash equivalents............................. 176,609
Plus: Other partnership assets, net of security deposits.... 482,074
Less: Mortgage debt, including accrued interest............. (7,610,802)
Less: Accounts payable and accrued expenses................. (403,728)
Less: Other liabilities..................................... (78,658)
-----------
Partnership valuation before taxes and certain costs........ 1,146,495
Less: Disposition fees...................................... 0
Less: Extraordinary capital expenditures and deferred
maintenance............................................... (1,365,920)
Less: Closing costs......................................... (214,525)
-----------
Estimated net valuation of your partnership................. 0
Percentage of estimated net valuation allocated to holders
of units.................................................. 0.00%
-----------
Estimated net valuation of units............................ 0
Total number of units............................. 46.0
-----------
Estimated valuation per unit................................ 0
===========
Cash consideration per unit................................. $ 100
===========
</TABLE>
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In order to determine the number of Preferred OP Units we are offering for
each of your units, we divided the cash offer consideration of $100 by the $25
liquidation preference of each Preferred OP Unit to get 4.00 Preferred OP Units
per unit.
In order to determine the number of Common OP Units we are offering for
each of your units, we divided the cash offer consideration of $100 by a price
of $37.63 (the average closing price of AIMCO's Class A Common Stock on the NYSE
for the 30 trading days ended on March 24, 1999) to get 2.75 Common OP Units per
unit.
FAIRNESS OF THE OFFER
Fairness to Unitholders. Your general partner is our subsidiary. As a
result, your general partner has a conflict of interest and makes no
recommendation to you as to whether you should tender or refrain from tendering
your units. Your general partner did not participate in the structuring of the
offer. We and your general partner believe that the offer and all forms of
consideration offered is fair to you and the other limited partners of your
partnership. We have retained Stanger to conduct an analysis of the offer and to
render an opinion as to the fairness to you of our offer consideration. Stanger
is not affiliated with us or your general partner. Stanger is one of the leaders
in the field of analyzing and evaluating complex real estate transactions.
However, we provided much of the information used by Stanger in forming its
fairness opinion. We believe the information provided to Stanger is accurate in
all material respects. You should make your decision whether to tender based
upon a number of factors, including your financial needs, other financial
opportunities available to you and your tax position.
The terms of our offer have been established by us and are not the result
of arms-length negotiations.
If you choose not to tender any units, your interest in your partnership
will remain unchanged, except that we may own a larger share of the limited
partnership interests in your partnership than we did before the offer. If we
acquire a substantial number of units pursuant to the offer, we may be in a
position to influence voting decisions with respect to your partnership. Your
general partner (which is our subsidiary) has no present intention to liquidate,
sell, finance or refinance your partnership's property within any specified time
period.
Comparison of Offer Price to Other Values. In evaluating the offer, your
general partner (which is our subsidiary) has compared our offer consideration
to:
- your general partner's estimate of the net proceeds that would be
distributed to you and your partners if your partnership was liquidated;
- your general partner's estimate of the going concern value of your
partnership if it continued operating as an independent stand-alone
entity;
- the net book value of your partnership; and
- a recent appraisal of the property for $9,100,000, which appraisal did
not take into account the mortgages, other assets and liabilities, costs
of sale of the property and over $1,365,920 of deferred maintenance of
the property.
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The results of these comparative analyses are summarized as follows:
COMPARISON TABLE
<TABLE>
<CAPTION>
PER UNIT
--------
<S> <C>
Cash offer consideration.................................... $ 100
Partnership Preferred Units................................. $ 100
Partnership Common Units.................................... $ 100
Alternatives:
Estimated liquidation proceeds............................ $ 0
Estimated going concern value............................. $ 0(1)
Estimated alternative going concern value................. $ 0(2)
Net book value (deficit).................................. $(75,395)
Estimated liquidation value based on appraised property
value.................................................. $ 1,520
</TABLE>
- ---------------
(1) Assumes a refinancing of the partnership property's mortgage when it comes
due.
(2) Assumes a sale of the partnership property when the mortgage is due rather
than a refinancing of the mortgages.
STANGER ANALYSIS
We engaged Stanger to conduct an analysis of our offer and to render its
opinion based on the review, analysis, scope and limitations described therein,
as to the fairness to you of our offer consideration from a financial point of
view. The full text of the opinion, which contains a description of the
assumptions and qualifications made, matters considered and limitations on the
review and analysis, is set forth in Appendix A and should be read in its
entirety. We imposed no conditions or limitations on the scope of Stanger's
investigation or with respect to the methods and procedures to be followed in
arriving at the fairness opinion. We have agreed to indemnify Stanger against
certain liabilities arising out of its engagement to render the fairness
opinion. Based on its analysis, and subject to the assumptions, limitations and
qualifications cited in its opinion, Stanger concluded that our offer
consideration is fair to you from a financial point of view. Stanger has
rendered similar fairness opinions with regard to the other tender offers being
made by the AIMCO Operating Partnership. Stanger rendered the opinions only as
to the individual fairness of the offer consideration in each proposed exchange
offer.
YOUR PARTNERSHIP
Your Partnership and its Property. Sycamore Creek Associates, L.P. is a
Delaware limited partnership which was formed on July 13, 1984 for the purpose
of owning and operating a single apartment property located in Cincinnati, Ohio,
known as "Sycamore Creek Apartments." Sycamore Creek Apartments consists of 295
units and was built in 1979. Your partnership has no employees. As of September
30, 1998, there were 45.99 units of limited partnership interest issued and
outstanding, which were held of record by 72 limited partners. Your
partnership's principal executive offices are located at 1873 South Bellaire
Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that
address is (303) 757-8101.
Between January 1, 1993 and December 31, 1998 your partnership did not pay
cash distributions. Your partnership currently owns one property.
Property Management. Your partnership's property has been managed by an
affiliate of ours. Pursuant to the management agreement between the property
manager and your partnership, the property manager operates your partnership's
property, establishes rental policies and rates and directs marketing
activities. The property manager also is responsible for maintenance, the
purchase of equipment and supplies, and the selection and engagement of all
vendors, suppliers and independent contractors.
Investment Objectives and Policies; Sale or Financing of Investments. Under
your partnership's agreement of limited partnership, your partnership is not
permitted to raise new capital or reinvest cash in new
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properties. Your partnership will terminate on December 31, 2008, unless earlier
dissolved. Your general partner has no present intention to liquidate, sell,
finance or refinance your partnership property within any specified time period.
An investment in your partnership is a finite life investment in which partners
receive regular cash distributions out of your partnership's distributable cash
flow, if any, and upon liquidation.
Borrowing Policies. Your partnership's agreement of limited partnership
allows your partnership to incur debt. As of December 31, 1998, your partnership
had a mortgage note outstanding of $7,095,303, payable to Marine Midland and
Bank of America, which bears interest at the rate of 7.60%. The mortgage debt is
due on November 2002. Your partnership also has a second mortgage note
outstanding of $256,342, on the same terms as the current mortgage note. Your
partnership's agreement of limited partnership also allows your general partner
to lend funds to your partnership. As of December 31, 1998, your general partner
had no outstanding loans to your partnership.
Transfers. Your units are not listed on any national securities exchange or
quoted on NASDAQ, and there is no established public trading market for the
units. Secondary sales activity for the units has been limited and sporadic.
Your general partner monitors transfers of the units (i) because the admission
of the transferee as a substitute limited partner in your partnership requires
the consent of your general partner under your partnership agreement, and (ii)
in order to track compliance with applicable safe harbor provisions to avoid
treatment as a "publicly traded partnership" for tax purposes. However, your
general partner does not monitor or regularly receive or maintain information
regarding the prices at which secondary sale transactions in the units have been
effectuated.
TERMS OF THE OFFER
General. We are offering to acquire up to 25% of the outstanding 45.99
units of your partnership for consideration per unit of 4.00 Preferred OP Units,
2.75 Common OP Units, or $100 in cash. If you tender units pursuant to the
offer, you may choose to receive any combination of such forms of consideration
for your units. The offer is made upon the terms and subject to the conditions
set forth in this Prospectus Supplement, the accompanying Prospectus and the
accompanying Letter of Transmittal, including the instructions thereto, as the
same may be supplemented or amended from time to time (the "Letter of
Transmittal"). To be eligible to receive Preferred OP Units, Common OP Units or
cash pursuant to the offer, you must validly tender and not withdraw your units
on or prior to the Expiration Date. For administrative purposes, the transfer of
units tendered pursuant to the offer will be deemed to take effect as of January
1, 1999, although you will be entitled to retain any distributions you may have
received after such date and prior to our commencement of this offer.
If you accept our offer and do not specify the consideration you desire on
the letter of transmittal, we will issue you Preferred OP Units.
Expiration Date. Our offer will expire at 5:00 P.M., New York City time, on
June 4, 1999, unless extended.
Conditions of the Offer. Our offer is not conditioned on the tender of any
minimum number of units. However, our offer is conditioned on a number of other
factors.
Procedures for Tendering. If you desire to accept our offer, you must
complete and sign the Letter of Transmittal in accordance with the instructions
contained therein and forward or hand deliver it, together with any other
required documents, to the Information Agent.
Proration. If the number of units properly tendered and not withdrawn prior
to the Expiration Date exceeds 25% of the outstanding units, upon the terms and
subject to the conditions of the offer, we will accept all units properly
tendered and not withdrawn prior to the expiration date on a pro rata basis. In
the event that proration of tendered units is required, we will determine the
final proration factor as promptly as practicable after the expiration date.
Withdrawal Rights. You may withdraw your tender of units pursuant to the
offer at any time prior to the their acceptance for payment as provided for
herein.
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Purpose of the Offer. The purpose of our offer is to provide us with an
opportunity to increase our investment in apartment properties, and provide you
and your partners with an opportunity to liquidate your current investment and
to invest in our operating partnership or receive cash, or to retain your units.
Fractional OP Units. We will issue fractional Common OP Units or Preferred
OP Units, if necessary.
Delivery of OP Units and Cash. We will deliver OP Units and cash as soon as
practicable after acceptance of units for purchase.
Extension; Termination; Amendment. We expressly reserve the right, in our
sole discretion, at any time and from time to time, to:
- extend the period of time during which the offer is open and thereby
delay acceptance of, and payment for, any tendered units;
- terminate the offer and not accept for payment any units not theretofore
accepted for payment or paid for;
- upon the failure to satisfy any of the conditions to the offer, delay the
acceptance of, or payment for, any units not already accepted for payment
or paid for; and
- amend the offer in any respect (subject to applicable rules regarding
tender offers), including the nature and form of consideration.
Effects of the Offer. As a result of the offer, we, in our capacity as a
limited partner of your partnership, will participate in any subsequent
distributions to limited partners, to the extent of units we purchase pursuant
to the offer. The offer will not affect the operation of any property owned by
your partnership's because your general partner (which is our subsidiary) and
the property manager will remain unchanged. If we borrow funds for the cash
consideration for these offers, our interest costs would increase which could
adversely affect our future earnings. If all units in this and our other
contemplated offers were purchased for cash and we borrowed all the funds, at
current interest rates, our interest expense would increase by $3,064,000 per
year.
Voting by the AIMCO Operating Partnership. If we acquire a substantial
number of units pursuant to our offer, we may be in a position to influence
voting decisions with respect to your partnership. However, we will not be able
to control voting decisions unless we acquire more units in another transaction,
which cannot take place for at least one year after expiration of this offer.
Future Plans for Your Partnership. We currently intend that, upon
consummation of the offer, your partnership will continue its business and
operations substantially as they are currently being conducted. We do not have
any present plans or proposals which relate to or would result in any material
changes in your partnership's structure or business. We have no present
intention to cause your partnership to sell its property or to prepay the
current mortgage within any specified time period.
Certain Legal Matters. Except as set forth in this section, we are not,
based on information provided by your general partner (which is our subsidiary),
aware of any licenses or regulatory permits that would be material to the
business of your partnership, and that might be adversely affected by our
acquisition of units as contemplated herein. On the same basis, we are not aware
of any filings, approvals or other actions by or with any domestic or foreign
governmental authority or administrative or regulatory agency that would be
required prior to our acquisition of units pursuant to the offer as contemplated
herein that have not been made or obtained. We are not aware of any jurisdiction
in which the making of the offer is not in compliance with applicable law. If we
become aware of any jurisdiction in which the making of the offer would not be
in compliance with applicable law, we will make a good faith effort to comply
with any such law.
Fees and Expenses. We will not pay any fees or commissions to any broker,
dealer or other person for soliciting tenders of units pursuant to the offer. We
will pay the Information Agent reasonable and customary compensation for its
services in connection with the offer, plus reimbursement for out-of-pocket
expenses. We will indemnify the Information Agent against certain liabilities
and expenses in connection therewith, including liabilities under the Federal
securities laws. We will pay all costs and expenses of printing and
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<PAGE> 191
mailing this Prospectus Supplement and the accompanying Prospectus and Letter of
Transmittal, and the legal and accounting fees and expenses in connection with
the offer. We will also pay the fees of Stanger for providing the fairness
opinion for the offer. We estimate that our total costs and expenses in making
the offer (excluding the purchase price of the units payable to you and your
partners) will be approximately $50,000.
Accounting Treatment. Upon consummation of the offer, we will account for
our investment in any acquired units under the purchase method of accounting.
There will be no effect on the accounting treatment of your partnership as a
result of the offer.
No Dissenters' Rights. You are not entitled to dissenters' (appraisal)
rights in connection with the offer.
Other Offers. The AIMCO Operating Partnership is also making similar
exchange offers to approximately 90 other limited partnerships in which it
controls the general partner, interests in substantially all of which were
acquired in the merger on October 1, 1998 with Insignia Financial Group, Inc.
and the February 26, 1999 merger with Insignia Properties Trust. Each of such
exchange offers is being made by a separate prospectus supplement which is
similar to this Prospectus Supplement. Copies of such prospectus supplements may
be obtained upon written request from the Information Agent at the address set
forth in "-- Information Agent" or on the back cover page of this Prospectus
Supplement. The exchange offers may be different for limited partners in each
partnership in terms of pricing and percentage of units sought, but the effects
of the offers will essentially be the same. In general, we believe that the risk
factors (except for certain tax-related risk factors) described herein for this
offer will also be applicable to the other offers.
Information Agent. River Oaks Partnership Services, Inc. is serving as
Information Agent in connection with the offer. Its telephone numbers are (888)
349-2005 and (201) 896-1900. Its fax number is (201) 896-0910.
FEDERAL INCOME TAX CONSEQUENCES
You will generally not recognize any immediate taxable gain or loss for
Federal income tax purposes if you exchange your units solely for Preferred OP
Units or Common OP Units. You will recognize a gain or loss for Federal income
tax purposes on units you sell for cash. The exchange of your units for cash and
OP Units will be treated, for Federal income tax purposes, as a partial sale of
such units for cash and as a partial tax-free contribution of such units to our
operating partnership.
THE FOREGOING SUMMARY IS A GENERAL DISCUSSION OF THE MATERIAL FEDERAL
INCOME TAX CONSEQUENCES OF TENDERING UNITS IN THE OFFER. THIS SUMMARY DOES NOT
DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN
LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT
UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER
TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU
SHOULD REVIEW "FEDERAL INCOME TAX CONSEQUENCES" IN THIS PROSPECTUS SUPPLEMENT
AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME
TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX
CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A
FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER.
COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP
There are a number of significant differences between your partnership and
the AIMCO Operating Partnership relating to, among other things, form of
organization, permitted investments, policies and restrictions, management
structure, compensation and fees, and investor rights. For example, your general
partner (which is our subsidiary) may be removed by the limited partners while
the limited partners of the AIMCO Operating Partnership cannot remove the
general partner. Also, your partnership is limited as to the number of limited
partner interests it may issue while the AIMCO Operating Partnership has no such
limitation.
S-14
<PAGE> 192
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS
There are a number of significant differences between your units, Preferred
OP Units and Common OP Units relating to, among other things, the nature of the
investment, voting rights, distributions and liquidity and
transferability/redemption. For example, unlike the AIMCO OP Units, you have no
redemption rights with respect to your units.
As of February 19, 1999, the AIMCO Operating Partnership had approximately
9,729,130 Common OP Units outstanding (excluding interests held by AIMCO) and no
Class Two Partnership Preferred Units outstanding. The number of OP Units you
may acquire from us in exchange for your units will represent a lower percentage
of the outstanding limited partnership interests in the AIMCO Operating
Partnership than that of your current ownership interest in your partnership. In
response to our offer, you could elect to receive $100 in cash, 4.00 Preferred
OP Units or 2.75 Common OP Units. Both your units and the OP Units are subject
to transfer restrictions and it is unlikely that a real trading market will ever
develop for any of such securities. If you subsequently redeem OP Units for
AIMCO Class A Common Stock or Class I Preferred Stock, we can make no assurance
as to the value of such shares of AIMCO stock, at that time, which may be less
than the cash offer price of $100.
CONFLICTS OF INTEREST
Conflicts of Interest with Respect to the Offer. Your general partner is
our subsidiary and, therefore, has substantial conflicts of interest with
respect to the offer, including (i) the fact that replacement of your general
partner could result in a decrease or elimination of the management fees paid to
an affiliate for managing your partnership's property and (ii) our desire to
purchase units at a low price and your desire to sell units at a high price.
Your general partner makes no recommendation as to whether you should tender or
refrain from tendering your units.
Conflicts of Interest that Currently Exist for Your Partnership. We own
both the general partner of your partnership and the manager of your
partnership's property. The general partner does not receive an annual
management fee but may receive reimbursements for expenses incurred in its
capacity as general partner. The general partner of your partnership received
total fees and reimbursements of $39,548.64 for the fiscal year ended December
31, 1998. The property manager received management fees of $105,495 for the
fiscal year ended December 31, 1998. We have no current intention of changing
the fee structure for your general partner or the property manager.
Competition Among Properties. Your partnership's property and other
properties owned or managed by us may compete with one another for tenants.
However, in some cases it may be difficult to determine precisely the confines
of the market area for particular properties and some competition may exist.
Furthermore, you should bear in mind that we anticipate acquiring properties in
general market areas where your partnership's property is located. It is
believed that this concentration of properties in a general market area will
facilitate overall operations through collective advertising efforts, staffing
and other operational efficiencies. In managing our properties, we will attempt
to reduce such conflicts between competing properties by referring prospective
tenants to the property considered to be most conveniently located for the
tenants' needs.
Features Discouraging Potential Takeovers. Certain provisions of our
governing documents, as well as statutory provisions under certain state laws,
could be used by our management to delay, discourage or thwart efforts of third
parties to acquire control of us, or a significant equity interest in us.
AIMCO's Charter limits ownership of its common stock by any single shareholder
to 8.7% of the outstanding shares (or 15% in the case of certain pension trusts,
registered investment companies and AIMCO's Chairman, Terry Considine). The 8.7%
ownership limit may have the effect of precluding acquisition of control of us
by a third party without the consent of our Board of Directors. Under AIMCO's
Charter, the Board of Directors has the authority to classify and reclassify any
of its unissued shares of capital stock into shares of preferred stock with such
preferences, rights, powers and restrictions as the Board of Directors may
determine. The authorization and issuance of preferred stock could have the
effect of delaying or preventing someone from taking control of us, even if a
change in control were in our shareholders' best interests. As a Maryland
corporation, AIMCO is
S-15
<PAGE> 193
subject to various Maryland laws which may have the effect of discouraging
offers to acquire us and of increasing the difficulty of consummating any such
offers, even if our acquisition would be in our shareholders' best interests.
The Maryland General Corporation Law restricts mergers and other business
combination transactions between us and any person who acquires beneficial
ownership of shares of our stock representing 10% or more of the voting power
without our Board of Directors' prior approval. Any such business combination
transaction could not be completed until five years after the person acquired
such voting power, and only with the approval of shareholders representing 80%
of all votes entitled to be cast and 66% of the votes entitled to be cast,
excluding the interested shareholder. Maryland law also provides that a person
who acquires shares of our stock that represent 20% or more of the voting power
in electing directors will have no voting rights unless approved by a vote of
two-thirds of the shares eligible to vote.
Future Exchange Offers. Although we have no current plans to conduct
further exchange offers for your units, our plans may change based on future
circumstances. Any such future offers that we might make could be for
consideration that is more or less than the consideration we are currently
offering. We might pay a higher price for any future exchange offers we may make
for units of your partnership. In any event, we will not acquire any units for
at least one year after expiration of this offer.
SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES
We expect that approximately $1,150 will be required to purchase all of the
units sought in our offer, if such units are tendered for cash excluding
expenses. We will obtain all such funds from cash from operations, equity
issuances and short term borrowings. For a detailed description of estimated
expenses to be incurred in the offer, see "Source and Amount of Funds and
Transactional Expenses."
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<PAGE> 194
SUMMARY FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P.
The historical summary financial data for AIMCO Properties, L.P. for the
nine months ended September 30, 1998 and 1997 is unaudited. The historical
summary financial data for AIMCO Properties, L.P. for the years ended December
31, 1997, 1996 and 1995 and for the AIMCO Properties, L.P. Predecessors for the
period January 10, 1994 through July 28, 1994, and the year ended December 31,
1993, is based on audited financial statements. This information should be read
in conjunction with such financial statements, including the notes thereto, and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of the AIMCO Operating Partnership" included in the accompanying
Prospectus. All dollar values are in thousands, except per unit data.
<TABLE>
<CAPTION>
AIMCO PROPERTIES, L.P.
-------------------------------------------------------------------------
FOR THE
PERIOD
JULY 29,
FOR THE NINE MONTHS FOR THE YEAR ENDED 1994
ENDED SEPTEMBER 30, DECEMBER 31, THROUGH
----------------------- -------------------------------- DECEMBER 31,
1998 1997 1997 1996 1995 1994
---------- ---------- ---------- -------- -------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
RENTAL PROPERTY OPERATIONS:
Rental and other income............... $ 265,700 $ 127,083 $ 193,006 $100,516 $ 74,947 $ 24,894
Property operating expenses........... (101,600) (50,737) (76,168) (38,400) (30,150) (10,330)
Owned property management expenses.... (7,746) (4,344) (6,620) (2,746) (2,276) (711)
Depreciation.......................... (59,792) (23,848) (37,741) (19,556) (15,038) (4,727)
---------- ---------- ---------- -------- -------- ---------
96,562 48,154 72,477 39,814 27,483 9,126
---------- ---------- ---------- -------- -------- ---------
SERVICE COMPANY BUSINESS:
Management fees and other income...... 13,968 9,173 13,937 8,367 8,132 3,217
Management and other expenses......... (8,101) (5,029) (9,910) (5,352) (4,953) (2,047)
Corporate overhead allocation......... (196) (441) (588) (590) (581) --
Other assets, depreciation and
amortization........................ (3) (236) (453) (218) (168) (150)
Owner and seller bonuses.............. -- -- -- -- -- --
Amortization of management company
goodwill............................ -- -- (948) (500) (428) --
---------- ---------- ---------- -------- -------- ---------
5,668 3,467 2,038 1,707 2,002 1,020
Minority interests in service company
business............................ -- 48 (10) 10 (29) (14)
---------- ---------- ---------- -------- -------- ---------
Company's shares of income from
service company business............ 5,668 3,515 2,028 1,717 1,973 1,006
---------- ---------- ---------- -------- -------- ---------
General and administrative expenses... (7,444) (1,408) (5,396) (1,512) (1,804) (977)
Interest income....................... 18,244 4,458 8,676 523 658 123
Interest expense...................... (56,756) (33,359) (51,385) (24,802) (13,322) (1,576)
Minority interest in other
partnerships........................ (1,052) (777) 1,008 (111) -- --
Equity in losses of unconsolidated
partnerships(c)..................... (5,078) (463) (1,798) -- -- --
Equity in earnings of unconsolidated
subsidiaries(d)..................... 8,413 456 4,636 -- -- --
Amortization of goodwill.............. (5,071) (711) -- -- -- --
---------- ---------- ---------- -------- -------- ---------
Income from operations................ 53,486 19,865 30,246 15,629 14,988 7,702
Gain on disposition of properties..... 2,783 (169) 2,720 44 -- --
Provision for income taxes............ -- -- -- -- -- --
---------- ---------- ---------- -------- -------- ---------
Income (loss) before extraordinary
item................................ 56,269 19,696 32,966 15,673 14,988 7,702
Extraordinary item -- early
extinguishment of debt.............. -- (269) (269) -- -- --
---------- ---------- ---------- -------- -------- ---------
Net income (loss)..................... $ 56,269 $ 19,427 $ 32,697 $ 15,673 $ 14,988 $ 7,702
========== ========== ========== ======== ======== =========
OTHER INFORMATION:
Total owned properties (end of
period)............................. 241 109 147 94 56 48
Total owned apartment units (end of
period)............................. 62,955 28,773 40,039 23,764 14,453 12,513
Units under management (end of
period)............................. 154,729 71,038 69,587 19,045 19,594 20,758
Basic earnings per Common OP Unit..... $ 0.80 $ 0.53 $ 1.09 $ 1.05 $ 0.86 $ 0.42
Diluted earnings per Common OP Unit... $ 0.79 $ 0.53 $ 1.08 $ 1.04 $ 0.86 $ 0.42
Distributions paid per Common OP
Unit................................ $ 1.6875 $ 1.3875 $ 1.85 $ 1.70 $ 1.66 $ 0.29
Cash flows provided by operating
activities.......................... 50,825 53,435 73,032 38,806 25,911 16,825
Cash flows used in investing
activities.......................... (185,453) (314,814) (717,663) (88,144) (60,821) (186,481)
Cash flows provided by (used in)
financing activities................ 141,221 293,984 668,549 60,129 30,145 176,800
<CAPTION>
AIMCO PROPERTIES, L.P.
PREDECESSORS(A)
--------------------------
FOR THE
PERIOD
JANUARY 10,
1994 FOR THE YEAR
THROUGH ENDED
JULY 28, DECEMBER 31,
1994(B) 1993
----------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C>
OPERATING DATA:
RENTAL PROPERTY OPERATIONS:
Rental and other income............... $ 5,805 $ 8,056
Property operating expenses........... (2,263) (3,200)
Owned property management expenses.... -- --
Depreciation.......................... (1,151) (1,702)
------- --------
2,391 3,154
------- --------
SERVICE COMPANY BUSINESS:
Management fees and other income...... 6,533 8,069
Management and other expenses......... (5,823) (6,414)
Corporate overhead allocation......... -- --
Other assets, depreciation and
amortization........................ (146) (204)
Owner and seller bonuses.............. (204) (468)
Amortization of management company
goodwill............................ -- --
------- --------
360 983
Minority interests in service company
business............................ -- --
------- --------
Company's shares of income from
service company business............ 360 983
------- --------
General and administrative expenses... -- --
Interest income....................... -- --
Interest expense...................... (4,214) (3,510)
Minority interest in other
partnerships........................ -- --
Equity in losses of unconsolidated
partnerships(c)..................... -- --
Equity in earnings of unconsolidated
subsidiaries(d)..................... -- --
Amortization of goodwill.............. -- --
------- --------
Income from operations................ (1,463) 627
Gain on disposition of properties..... -- --
Provision for income taxes............ (36) (336)
------- --------
Income (loss) before extraordinary
item................................ (1,499) 291
Extraordinary item -- early
extinguishment of debt.............. -- --
------- --------
Net income (loss)..................... $(1,499) $ 291
======= ========
OTHER INFORMATION:
Total owned properties (end of
period)............................. 4 4
Total owned apartment units (end of
period)............................. 1,711 1,711
Units under management (end of
period)............................. 29,343 28,422
Basic earnings per Common OP Unit..... N/A N/A
Diluted earnings per Common OP Unit... N/A N/A
Distributions paid per Common OP
Unit................................ N/A N/A
Cash flows provided by operating
activities.......................... 2,678 2,203
Cash flows used in investing
activities.......................... (924) (16,352)
Cash flows provided by (used in)
financing activities................ (1,032) 14,114
</TABLE>
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<PAGE> 195
<TABLE>
<CAPTION>
AIMCO PROPERTIES, L.P.
-------------------------------------------------------------------------
FOR THE
PERIOD
JULY 29,
FOR THE NINE MONTHS FOR THE YEAR ENDED 1994
ENDED SEPTEMBER 30, DECEMBER 31, THROUGH
----------------------- -------------------------------- DECEMBER 31,
1998 1997 1997 1996 1995 1994
---------- ---------- ---------- -------- -------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C> <C> <C> <C> <C>
Funds from operations(e)................ $ 132,881 $ 49,692 $ 81,155 $ 35,185 $ 25,285 $ 9,391
Weighted average number of Common OP
Units outstanding..................... 53,007 24,347 29,119 14,994 11,461 10,920
BALANCE SHEET INFORMATION:
Real estate, before accumulated
depreciation.......................... $2,685,487 $1,250,239 $1,657,207 $865,222 $477,162 $ 406,067
Real estate, net of accumulated
depreciation.......................... 2,355,122 1,107,545 1,503,922 745,145 448,425 392,368
Total assets............................ 3,121,949 1,608,195 2,100,510 827,673 480,361 416,361
Total mortgages and notes payable....... 1,275,401 661,715 808,530 522,146 268,692 141,315
Redeemable Partnership Units............ 232,405 178,321 197,086 96,064 38,463 32,047
Mandatorily redeemable 1994 Cumulative
Senior Preferred Units................ -- -- -- -- -- 107,228
Partners' Capital....................... 1,427,087 560,737 960,176 178,462 160,947 137,354
<CAPTION>
AIMCO PROPERTIES, L.P.
PREDECESSORS(A)
--------------------------
FOR THE
PERIOD
JANUARY 10,
1994 FOR THE YEAR
THROUGH ENDED
JULY 28, DECEMBER 31,
1994(B) 1993
----------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C>
Funds from operations(e)................ N/A N/A
Weighted average number of Common OP
Units outstanding..................... N/A N/A
BALANCE SHEET INFORMATION:
Real estate, before accumulated
depreciation.......................... $47,500 $ 46,819
Real estate, net of accumulated
depreciation.......................... 33,270 33,701
Total assets............................ 39,042 38,914
Total mortgages and notes payable....... 40,873 41,893
Redeemable Partnership Units............ -- --
Mandatorily redeemable 1994 Cumulative
Senior Preferred Units................ -- --
Partners' Capital....................... (9,345) (7,556)
</TABLE>
- ---------------
(a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000
shares of AIMCO Class A Common Stock and issued 966,000 shares of
convertible preferred stock and 513,514 unregistered shares of AIMCO Common
Stock. The proceeds from the offering and such other issuances were
contributed by AIMCO to AIMCO Properties, L.P. for 9,075,000 OP Units,
966,000 Preferred Units and 513,514 Common OP Units, respectively. On such
date, AIMCO Properties, L.P. and its predecessors engaged in a business
combination and consummated a series of related transactions which enabled
AIMCO Properties, L.P. to continue and expand the property management and
related businesses of its predecessors. The 966,000 shares of convertible
preferred stock and 513,514 shares of AIMCO Class A Common Stock that were
issued concurrently with the initial public offering were repurchased in
1995.
(b) Represents the period January 10, 1994 through July 28, 1994, the date of
the completion of the business combination with AIMCO Properties, L.P.
(c) Represents AIMCO Properties, L.P.'s share of earnings from partnerships
that own 83,431 apartment units in which partnerships AIMCO Properties,
L.P. purchased an equity interest from the NHP Real Estate Companies.
(d) Represents AIMCO Properties, L.P. equity earnings in unconsolidated
subsidiaries.
(e) AIMCO Properties, L.P.'s management believes that the presentation of funds
from operations or "FFO", when considered with the financial data
determined in accordance with GAAP, provides a useful measure of
performance. However, FFO does not represent cash flow and is not
necessarily indicative of cash flow or liquidity available to AIMCO
Properties, L.P., nor should it be considered as an alternative to net
income as an indicator of operating performance. The Board of Governors of
NAREIT defines FFO as net income (loss), computed in accordance with GAAP,
excluding gains and losses from debt restructuring and sales of property,
plus real estate related depreciation and amortization (excluding
amortization of financing costs), and after adjustments for unconsolidated
partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO
based on the NAREIT definition, as adjusted for the amortization of
management company goodwill, the non-cash deferred portion of the income
tax provision for unconsolidated subsidiaries and less the payments of
dividends on perpetual preferred stock. AIMCO Properties, L.P. management
believes that presentation of FFO provides investors with industry-accepted
measurements which help facilitate an understanding of its ability to make
required dividend payments, capital expenditures and principal payments on
its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of
computing FFO is comparable with that of other REITs.
The following is a reconciliation of net income to funds from operations:
<TABLE>
<CAPTION>
FOR THE
FOR THE NINE PERIOD
MONTHS ENDED FOR THE YEAR ENDED JANUARY 10,
SEPTEMBER 30, DECEMBER 31, 1994
------------------ --------------------------- THROUGH
1998 1997 1997 1996 1995 JULY 28, 1994
-------- ------- ------- ------- ------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net income.................................................. $ 56,269 $19,427 $32,697 $15,673 $14,988 $ 7,702
(Gain) loss on disposition of property...................... (2,783) 169 (2,720) (44) -- --
Extraordinary item.......................................... -- 269 269 -- -- --
Real estate depreciation, net of minority interests......... 56,900 21,052 33,751 19,056 15,038 4,727
Amortization of goodwill.................................... 7,077 711 948 500 428 76
Equity in earnings of unconsolidated subsidiaries:
Real estate depreciation.................................. -- 2,689 3,584 -- -- --
Amortization of management contracts...................... 4,201 430 1,587 -- -- --
Deferred taxes............................................ 6,134 2,164 4,894 -- -- --
Equity in earnings of other partnerships:
Real estate depreciation.................................. 17,379 2,781 6,280 -- -- --
Preferred stock dividends................................. (12,296) -- (135) -- (5,169) (3,114)
-------- ------- ------- ------- ------- -------
Funds from operations....................................... $132,881 $49,692 $81,155 $35,185 $25,285 $ 9,391
======== ======= ======= ======= ======= =======
</TABLE>
S-18
<PAGE> 196
SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION OF AIMCO PROPERTIES, L.P.
The following table sets forth summary pro forma financial and operating
information of AIMCO Properties, L.P. (the AIMCO Operating Partnership) for the
nine months ended September 30, 1998 and for the year ended December 31, 1997.
The pro forma financial and operating information gives effect to AIMCO's merger
with Insignia Financial Group, Inc., the transfer of certain assets and
liabilities of Insignia to unconsolidated subsidiaries, a number of transactions
completed before the Insignia merger, and a number of exchange offers proposed
to be made to limited partnerships formerly controlled or managed by Insignia,
including your partnership.
<TABLE>
<CAPTION>
AIMCO PROPERTIES, L.P.
----------------------------
FOR THE NINE
MONTHS FOR THE
ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
(IN THOUSANDS, EXCEPT
PER UNIT DATA)
<S> <C> <C>
OPERATING DATA:
RENTAL PROPERTY OPERATIONS:
Rental and other income................................... $ 345,961 $ 442,526
Property operating expenses............................... (136,240) (189,442)
Owned property management expenses........................ 8,933 (11,831)
Depreciation.............................................. (80,420) (98,853)
--------- ---------
120,368 142,400
--------- ---------
SERVICE COMPANY BUSINESS:
Management fees and other income.......................... 28,912 41,676
Management and other expenses............................. (14,386) (23,683)
Corporate overhead allocation............................. (196) (588)
Depreciation and amortization............................. (15,243) (26,480)
--------- ---------
(913) (9,075)
Minority interests in service company business............ -- (10)
--------- ---------
Partnership's shares of income from service company
business............................................... (913) (9,085)
--------- ---------
General and administrative expenses....................... (8,632) (21,371)
Interest expense.......................................... (90,890) (121,699)
Interest income........................................... 40,887 21,734
Minority interest......................................... (8,548) (10,034)
Equity in losses of unconsolidated partnerships........... (23,349) (43,918)
Equity in earnings of unconsolidated subsidiaries......... 851 5,848
Amortization of Goodwill.................................. (5,071) --
--------- ---------
Net income........................................ $ 24,703 $ (36,125)
========= =========
PER OP UNIT DATA:
Basic earnings (loss) per Common OP Unit.................... $ (.12) $ (1.16)
Diluted earnings (loss) per Common OP Unit.................. $ (.12) $ (1.16)
Distributions paid per Common OP Unit....................... $ 1.69 $ 1.85
Book value per Common OP Unit............................... $ 24.52 $ 26.96
CASH FLOW DATA:
Cash provided by operating activities....................... $ 90,439 $ 130,703
Cash used in investing activities........................... (79,923) (1,135,038)
Cash provided by (used in) financing activities............. 16,740 955,977
OTHER DATA:
Funds from operations(a).................................... $ 187,985 $ 172.733
Weighted average number of Common OP Units outstanding...... 74,946 74,094
</TABLE>
S-19
<PAGE> 197
<TABLE>
<CAPTION>
AIMCO PROPERTIES, L.P.
----------------------
FOR THE NINE
MONTHS ENDED
SEPTEMBER 30, 1998
----------------------
(IN THOUSANDS, EXCEPT
PER UNIT DATA)
<S> <C>
BALANCE SHEET DATA:
Real estate, net of accumulated depreciation................ $2,679,195
Total assets................................................ 4,558,819
Total mortgages and notes payable........................... 1,762,105
Company-obligated mandatorily redeemable convertible
securities of a subsidiary trust.......................... 149,500
Redeemable partnership units................................ 320,443
Partners' capital........................................... 1,984,019
</TABLE>
- ---------------
(a) AIMCO Properties, L.P.'s management believes that the presentation of funds
from operations or "FFO," when considered with the financial data
determined in accordance with GAAP, provides useful measures of AIMCO
Properties, L.P. performance. However, FFO does not represent cash flow and
is not necessarily indicative of cash flow or liquidity available to AIMCO
Properties, L.P., nor should it be considered as an alternative to net
income as an indicator of operating performance. The Board of Governors of
NAREIT defines FFO as net income (loss), computed in accordance with GAAP,
excluding gains and losses from debt restructuring and sales of property,
plus real estate related depreciation and amortization (excluding
amortization of financing costs), and after adjustments for unconsolidated
partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO
based upon the NAREIT definition, as adjusted for the amortization of
management company goodwill, the non-cash deferred portion of the income
tax provision for unconsolidated subsidiaries and less the payments of
dividends on perpetual preferred stock. AIMCO Properties, L.P. management
believes that presentation of FFO provides investors with an industry
accepted measurement which helps facilitate an understanding of AIMCO
Properties, L.P.'s ability to make required dividend payments, capital
expenditures and principal payments on its debt. There can be no assurance
that AIMCO Properties, L.P.'s basis of computing FFO is comparable with
that of other REITs.
The following is a reconciliation of pro forma net income to pro forma
funds from operations:
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS ENDED FOR THE YEAR ENDED
SEPTEMBER 30, 1998 DECEMBER 31, 1997
------------------ ------------------
(IN THOUSANDS)
<S> <C> <C>
Net income (loss)................................. $ 24,703 $(36,125)
HUD release fee and legal reserve................. -- 10,202
Real estate depreciation, net of minority
interests....................................... 76,521 93,050
Amortization of management contracts.............. 9,593 12,790
Amortization of management company goodwill....... 10,997 12,551
Equity in earnings of unconsolidated subsidiaries:
Real estate depreciation........................ -- 1,715
Amortization of management company goodwill..... 959 1,918
Amortization of management contracts............ 23,010 30,516
Deferred taxes.................................. (713) (1,356)
Equity in earnings of other partnerships:
Real estate depreciation........................ 79,559 95,285
Interest on convertible debentures................ (7,537) (10,003)
Preferred unit distributions...................... (29,107) (37,810)
-------- --------
Funds from operations............................. $187,985 $172,733
======== ========
</TABLE>
S-20
<PAGE> 198
SUMMARY FINANCIAL INFORMATION OF SYCAMORE CREEK ASSOCIATES, L.P.
The summary financial information of Sycamore Creek Associates, L.P. for
the nine months ended September 30, 1998 and 1997 is unaudited. The summary
financial information for Sycamore Creek Associates, L.P. for the years ended
December 31, 1997, 1996, 1995, 1994 and 1993 is based on audited financial
statements. This information should be read in conjunction with such financial
statements, including the notes thereto, and "Management's Discussion and
Analysis of Financial Condition and Results of Operations of Your Partnership"
included herein. See "Index to Financial Statements."
SYCAMORE CREEK ASSOCIATES, L.P.
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31,
----------------------- --------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Total Revenues................ $1,534,326 $1,494,111 $2,188,188 $2,004,396 $1,945,886 $1,962,728 $1,949,820
Net Income/(Loss)............. 93,209 (24,234) 163,481 (46,944) (130,568) (166,329) (322,865)
Net Income per limited
partnership unit............ 2,006 (522) 3,518 (1,010) (2,810) (3,580) (6,949)
Distributions per limited
partnership unit............ -- -- -- -- -- -- --
Distributions per limited
partnership unit (which
represent a return of
capital).................... -- -- -- -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------------------- -------------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and Cash Equivalents.... $ 64,511 $ 81,573 $ 176,610 $ 26,198 $ 47,135 $ 154,046 $ 123,421
Real Estate, Net of
Accumulated Depreciation... 3,652,983 3,503,005 3,742,574 3,520,681 3,615,857 3,784,245 4,133,574
Total Assets................. 4,117,498 3,990,610 4,514,857 4,461,521 4,314,024 4,598,813 4,847,640
Notes Payable................ 7,155,171 7,305,472 7,267,097 7,422,113 7,569,042 7,704,803 7,828,473
General Partners' Capital/
(Deficit).................... (3,374,190) (3,655,114) (3,467,399) (3,630,880) (3,583,936) (3,453,368) (3,287,039)
Limited Partners' Capital/
(Deficit).................... -- -- -- -- -- -- --
Partners' Deficit.............. (3,374,190) (3,655,114) (3,467,399) (3,630,880) (3,583,936) (3,453,368) (3,287,039)
Total Distributions............ -- -- -- -- -- -- --
Book value per limited
partnership unit............. -- -- -- -- -- -- --
Net increase (decrease) in cash
and cash equivalents......... (112,099) 55,375 150,412 (20,937) (106,911) 70,235 (78,015)
Net cash provided by operating
activities................... 112,078 173,659 288,307 255,429 -- -- --
Ratio of earnings to fixed
charges...................... 1.19/1 0.95/1 1.25/1 0.93/1 0.81/1 0.76/1 0.53/1
</TABLE>
COMPARATIVE PER UNIT DATA
Set forth below are historical cash distributions per unit of your
partnership for the year ended December 31, 1998, and the cash distributions
payable on the number of Common OP Units and Preferred OP Units issuable in
exchange therefor:
<TABLE>
<CAPTION>
ANNUAL
DISTRIBUTIONS
-------------
<S> <C>
Units of Sycamore Creek Associates, L.P. ................... $ 0
Equivalent cash distributions on Common OP Units(1)......... $6.88
Equivalent cash distributions on Preferred OP Units(2)...... $8.00
</TABLE>
- ---------------
(1) Calculated by multiplying the exchange ratio of 2.75 Common OP Units per
unit by the annualized distributions paid on the Common OP Units of $2.50
per unit.
(2) Calculated by multiplying the exchange ratio of 4.00 Preferred OP Units per
unit by the stated annual distribution rate on the Preferred OP Units of
$2.00 per unit.
S-21
<PAGE> 199
THE AIMCO OPERATING PARTNERSHIP
AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts
substantially all of the operations of AIMCO. AIMCO is a real estate investment
trust that owns and manages multifamily apartment properties throughout the
United States. Through its wholly owned subsidiaries, AIMCO GP, the sole general
partner of the AIMCO Operating Partnership, and the Special Limited Partner, as
of December 31, 1998, AIMCO held approximately an 83% interest in the AIMCO
Operating Partnership. Based on apartment unit data compiled by the National
Multi Housing Council, we believe that AIMCO is one of the largest owner and
manager of multifamily apartment properties in the United States, with a total
portfolio of 379,363 apartment units in 2,147 properties located in 49 states,
the District of Columbia and Puerto Rico. As of December 31, 1998, AIMCO:
- owned or controlled 63,086 units in 242 apartment properties;
- held an equity interest in 170,243 units in 902 apartment properties; and
- managed 146,034 units in 1,003 apartment properties for third party
owners and affiliates.
AIMCO's Class A Common Stock is listed and traded on the NYSE under the
symbol "AIV." On March 23, 1999, the last reported sale price of AIMCO Class A
Common Stock on the NYSE was $35 3/16. The following table shows the high and
low reported sales prices and dividends declared per share of AIMCO's Class A
Common Stock for the periods indicated. The table also shows the distributions
per unit declared on the Common OP Units for the same periods.
<TABLE>
<CAPTION>
CLASS A PARTNERSHIP
COMMON STOCK COMMON
--------------------------- UNITS
CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION
----------------- ---- --- -------- ------------
<S> <C> <C> <C> <C>
1999
First Quarter (through March 23)........ $41 5/8 $35 3/16 $0.6250 $0.6250
1998
Fourth Quarter.......................... 37 3/8 30 0.5625 0.5625
Third Quarter........................... 41 30 15/16 0.5625 0.5625
Second Quarter.......................... 38 7/8 36 1/2 0.5625 0.5625
First Quarter........................... 38 5/8 34 1/4 0.5625 0.5625
1997
Fourth Quarter.......................... 38 32 0.5625 0.5625
Third Quarter........................... 36 3/16 28 1/8 0.4625 0.4625
Second Quarter.......................... 29 3/4 26 0.4625 0.4625
First Quarter........................... 30 1/2 25 1/2 0.4625 0.4625
1996
Fourth Quarter.......................... 28 3/8 21 1/8 0.4625 0.4625
Third Quarter........................... 22 18 3/8 0.4250 0.4250
Second Quarter.......................... 21 18 3/8 0.4250 0.4250
First Quarter........................... 21 1/8 19 3/8 0.4250 0.4250
</TABLE>
The principal executive offices of AIMCO, the AIMCO GP, the Special Limited
Partner and the AIMCO Operating Partnership are located at 1873 South Bellaire
Street, Denver, Colorado 80222, and their telephone number is (303) 757-8101.
S-22
<PAGE> 200
RISK FACTORS
The following sets forth certain risks and disadvantages of the offer and
should be read and considered when reviewing the potential benefits of the offer
set forth in "Background and Reasons for the Offer -- Expected Benefits of the
Offer." In addition, you should review the other risks of investing in us
beginning on page 2 of our accompanying Prospectus.
RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER
OFFER CONSIDERATION NOT BASED ON THIRD PARTY APPRAISAL OR ARMS-LENGTH
NEGOTIATION. We did not use any third-party appraisal or valuation to determine
the value of your partnership's property. We established the terms of our offer,
including the exchange ratios and the cash consideration without any arms-length
negotiations. It is uncertain whether our offer consideration reflects the value
which would be realized upon a sale of your units or a liquidation of your
partnership's assets. Because of our affiliation with your general partner, your
general partner makes no recommendation to you as to whether you should tender
your units. We have retained Stanger to conduct an analysis of our offer and to
render an opinion as to the fairness to you of our offer consideration from a
financial point of view.
OFFER CONSIDERATION MAY NOT REPRESENT FAIR MARKET VALUE. There is no
established or regular trading market for your units, nor is there another
reliable standard for determining the fair market value of your units. The offer
consideration does not necessarily reflect the price that you would receive in
an open market for your units. Such prices could be higher or lower than our
offer consideration.
RECENT APPRAISAL INDICATES A HIGHER VALUATION PER UNIT. In August 1997, an
independent appraiser valued the properties on an unencumbered basis to be
$9,100,000. Based on this appraised value, your units have a liquidation value
of $1,520 per unit. In determining our offer consideration we estimate your
property to be worth $8,581,000 less approximately $1,365,920 of deferred
maintenance. Therefore, it is possible that the sale of the property could
result in you receiving more pretax cash per unit than our offer and you would
receive more than our offer.
OFFER CONSIDERATION DOES NOT REFLECT FUTURE PROSPECTS. Our offer
consideration is based on your partnership's historical property income. It does
not ascribe any value to potential future improvements in the operating
performance of your partnership's property.
OFFER CONSIDERATION BASED ON OUR ESTIMATE OF LIQUIDATION PROCEEDS. The
offer consideration represents only our estimate of the amount you would receive
if we liquidated the partnership. In determining the liquidation value, we used
the direct capitalization method to estimate the value of your partnership's
property because we think a prospective purchaser of the property would value
the property using this method. In doing so, we applied a capitalization rate to
your partnership's property income for the year ended December 31, 1997. In
determining the appropriate capitalization rate, we considered your
partnership's results of operations since December 31, 1997. If property income
for a different period or a different capitalization rate was used, a higher
valuation could result. Other methods of valuing your units could also result in
a higher valuation.
OFFER CONSIDERATION MAY BE LESS THAN LIQUIDATION VALUE. The actual proceeds
obtained from a liquidation are highly uncertain and could be more or less than
our estimate. Accordingly, our offer consideration could be less than the net
proceeds that you would realize upon an actual liquidation of your partnership.
Even if our cash offer consideration is equal to liquidation value, if you
accept OP Units, you may not ultimately receive an amount equal to the cash
offer consideration when you sell such OP Units or any AIMCO securities you may
receive upon redemption of such OP Units.
HOLDING UNITS MAY RESULT IN GREATER FUTURE VALUE. You might receive more
pretax cash consideration if you do not tender your units and, instead, continue
to hold your units and ultimately receive proceeds from a liquidation of your
partnership.
CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is a
subsidiary of AIMCO and the AIMCO Operating Partnership and, therefore, has
substantial conflicts of interest with respect to our offer.
S-23
<PAGE> 201
We are making this offer with a view to making a profit. There is a conflict
between our desire to purchase your units at a low price and your desire to sell
your units at a high price. Another conflict is the fact that a decision of the
limited partners of your partnership to remove, for any reason, your general
partner or the manager of your partnership's property from its current position
would result in a decrease or elimination of the substantial fees paid to your
general partner or the property manager for services provided to your
partnership. Such conflicts of interest in connection with our offer and our
operation's differ from those conflicts of interest that currently exist for
your partnership.
CONFLICTS OF INTEREST RELATING TO MANAGEMENT FEES. Since our subsidiaries
receive fees for managing your partnership and its property, a conflict of
interest exists between our continuing the partnership and receiving such fees,
and the liquidation of the partnership and the termination of such fees.
POSSIBLE SUBSEQUENT OFFER AT A HIGHER PRICE. It is possible that we may
make a subsequent offer at a higher price, but not earlier than one year after
expiration of this offer. Such a decision will depend on, among other things,
the performance of your partnership, prevailing interest rates, and our interest
in acquiring additional limited partnership interests.
POSSIBLE RECOGNITION OF TAXABLE GAIN ON A SALE OF YOUR UNITS. In general,
if you exchange your units solely for our OP Units, it will not be a taxable
transaction. If you sell your units for cash, you will recognize taxable gain or
loss in an amount equal to the difference between the amount realized on the
sale and your adjusted tax basis in your units sold. If you exchange your units
for cash and our OP Units, it will be treated, for Federal income tax purposes,
as a partial taxable sale of such units for cash and as a partial tax-free
contribution of such units to the AIMCO Operating Partnership. If you exchange
your units for cash or for cash and OP Units, the "amount realized" will be
measured by the sum of the cash you receive plus the portion of your
partnership's liabilities allocated to the units sold for Federal income tax
purposes. To the extent that the amount of cash received plus the allocable
share of your partnership's liabilities allocated to such units exceeds your tax
basis in the units sold, you will recognize gain. Consequently, the tax
liability resulting from such gain could exceed the amount of cash received upon
such sale. If you exercise your redemption right with respect to the OP Units
within two years of the date that you transfer your units to the AIMCO Operating
Partnership, your exchange of units for OP Units or OP Units and cash could be
treated as a disguised sale of your units and you would be required to recognize
gain or loss in the year of the exchange on such disguised sale. See "Federal
Income Tax Consequences -- Disguised Sales." Although we have no present
intention to liquidate or sell your partnership's property or prepay the current
mortgage on your partnership's property within any specified time period, any
such action in the future generally will require you to fully recognize any
deferred taxable gain if you exchange your units for OP Units. In addition, if
the AIMCO Operating Partnership were to be treated as a "publicly traded
partnership" for Federal income tax purposes, passive activity losses generated
by other passive activity investments held by you, including passive activity
loss carryovers attributable to your units, could not be used to offset your
allocable share of income generated by the AIMCO Operating Partnership. If you
redeem OP Units for shares of AIMCO Class A Common Stock or Preferred Stock, you
will recognize gain or loss measured by the difference between the amount
realized and your adjusted tax basis in the OP Units exchanged. In addition, if
you acquire shares of AIMCO stock, you will no longer be able to use income and
loss from your investment to offset "passive" income and losses from other
investments, and the distributions from AIMCO will constitute taxable income to
the extent of AIMCO's earnings and profits.
The particular tax consequences of the offer to you will depend upon a
number of factors related to your individual tax situation, including your tax
basis in your units, whether you dispose of all of your units in your
partnership and whether the "passive loss" rules apply to your investments. You
should review "Federal Income Tax Consequences" in this Prospectus Supplement
and "Federal Income Taxation of AIMCO and AIMCO Stockholders," "Federal Income
Taxation of the AIMCO Operating Partnership and OP Unitholders" and "Other Tax
Consequences" in the accompanying Prospectus. Because the income tax
consequences of tendering units will not be the same for everyone, you should
consult your own tax advisor before determining whether to tender your units
pursuant to our offer.
S-24
<PAGE> 202
FAIRNESS OPINION OF THIRD PARTY RELIED ON INFORMATION WE PROVIDED. Robert
A. Stanger & Co.'s analysis of our offer and opinion as to the fairness to you
of our offer consideration from a financial point of view relies on information
prepared by the general partner of your partnership (which is controlled by us).
No tests of the underlying data were performed, and no independent appraisal was
conducted. Because the fairness opinion will not be updated, changes may occur
from the date of the fairness opinion that might affect the conclusions
expressed in the opinion.
LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. If you tender your
units in response to our offer, you will transfer all right title and interest
in and to all of the units that we accept, and all distributions in respect of
such units on or after the date on which we accept such units for purchase.
Accordingly, for any units that we acquire from you, you will not receive any
future distributions from operating cash flow of your partnership or upon a sale
of property owned by your partnership or a refinancing of any of its debt. If
you tender your units in exchange for OP Units, you will be entitled to future
distributions from the operating cash flow of the AIMCO Operating Partnership
and upon a dissolution, liquidation or winding-up of the AIMCO Operating
Partnership. See "Comparison of Your Units and AIMCO OP Units -- Distributions."
POSSIBLE EFFECT OF THE OTHER EXCHANGE OFFERS ON US. Concurrently with this
offer, we are making or intend to make similar offers to investors in
approximately 90 other limited partnerships. If all of these offers had been
completed by December 31, 1997, our net income for the nine months ended
September 30, 1998 would have been $24,703,000 instead of $41,493,000, based on
the assumptions included in the Pro Forma Financial Statements. If we borrow
funds for the cash consideration for these offers, our interest costs would
increase which could adversely affect our future earnings. If all units in all
the offers were purchased for cash and we borrowed all the funds, at current
interest rates, our interest expense would increase by $3,064,000 per year. See
"Pro Forma Financial Information of AIMCO Properties, L.P."
POTENTIAL DELAY IN PAYMENT. We reserve the right to extend the period of
time during which our offer is open and thereby delay acceptance for payment of
any tendered units. The offer may be extended indefinitely and no payment will
be made in respect of tendered units until the expiration of the offer and the
acceptance of units for payment.
RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER
FUNDAMENTAL CHANGE IN NATURE OF INVESTMENT. If you tender your units in
exchange for our OP Units, you will have changed fundamentally the nature of
your investment from (i) a partnership that distributes to its partners the
proceeds from the sale of a property or a refinancing of its indebtedness to
(ii) a partnership that reinvests the proceeds from sales of properties and
refinancings of its indebtedness. You will have changed from a small partnership
with a partnership termination date of December 31, 2008 to a much larger
partnership with a partnership termination date of 2093.
Under the AIMCO Operating Partnership's agreement of limited partnership,
the general partner has the ability, without the concurrence of the limited
partners, to acquire and dispose of properties and to borrow funds. Further,
while it is the intent to distribute net income from operations, sales of
properties and refinancings of indebtedness, the general partner may not make
such distributions. Proceeds of future asset sales or refinancings by the AIMCO
Operating Partnership generally will be reinvested rather than distributed.
FUNDAMENTAL CHANGE IN NUMBER OF PROPERTIES OWNED. If you exchange your
units for OP Units, you will have changed your investment from an interest in a
partnership which owns and manages a single property to an interest in the AIMCO
Operating Partnership which is in the business of acquiring, marketing, managing
and operating a large portfolio of apartment properties. While diversification
of assets may reduce certain risks of investment attributable to a single
property or entity, there can be no assurance as to the value or performance of
our securities and our portfolio of properties as compared to the value of your
units and your partnership.
LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP
Units. In addition, the AIMCO Operating Partnership's agreement of limited
partnership restricts the transferability of OP Units.
S-25
<PAGE> 203
We have no plans to list the OP Units on a securities exchange. It is unlikely
that any person will make a market in the OP Units, or that an active market for
the OP Units will develop.
UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes
quarterly distributions based on its available cash, there can be no assurance
regarding the amounts of available cash that our operating partnership will
generate or the portion that we will choose to distribute.
POSSIBLE REDUCTION IN REQUIRED DISTRIBUTIONS ON PREFERRED OP UNITS. On and
after March 1, 2005, we may reduce the rate of distributions required to be paid
on the Preferred OP Units, thus reducing the rate of return and possibly
encouraging you to redeem such units.
POSSIBLE REDEMPTION OF PREFERRED STOCK. On and after March 1, 2005, we may
redeem each share of Class I Preferred Stock for $25, plus any accumulated,
accrued and unpaid dividends, possibly forcing you to sell such shares to AIMCO
or to sell in the open market at a possibly lower price per share than would
have occurred without the redemption. If, for example, after five years we
redeemed the Class I Preferred Stock for $25 per share, you will have received
the present value equivalent of the cash consideration of our offer (assuming
annual distributions of $2.00 on each Preferred OP Unit, a discount rate of 8%
and without giving effect to the potential tax deferral associated with
receiving OP Units instead of cash).
POSSIBLE RECOGNITION OF TAXABLE GAIN ON OP UNITS. There are tax risks
associated with the acquisition, retention and disposition of OP Units. Although
your general partner (which is our subsidiary) has no present intention to
liquidate or sell your partnership's property or prepay the current mortgage on
the property within any specified time period, any such action in the future
generally will require you to fully recognize any deferred taxable gain if you
exchange your units for OP Units. See "Federal Income Taxation of the AIMCO
Operating Partnership and OP Unitholders" in the accompanying Prospectus. If you
exercise your redemption right with respect to the OP Units within two years of
the date that you transfer your units to the AIMCO Operating Partnership, your
exchange of units for OP Units and cash could be treated as a disguised sale of
your units and you would be required to recognize gain or loss in the year of
the exchange on such disguised sale. See "Federal Income Tax
Consequences -- Disguised Sales."
LIMITATIONS ON EFFECTING A CHANGE OF CONTROL. Our charter has restrictions
on the ownership of our equity securities in order to comply with certain REIT
tax requirements. The limited partners of the AIMCO Operating Partnership are
unable to remove the general partner of the AIMCO Operating Partnership or to
vote in the election of AIMCO's directors unless they own shares of AIMCO. As a
result, our limited partners and stockholders are limited in their ability to
effect a change of control of the AIMCO Operating Partnership and AIMCO.
LIMITATION ON TRANSFER OF OP UNITS. Investors in our partnership must hold
the OP Units for one year, subject to exceptions. Thereafter transfers may be
made subject to applicable transfer restrictions.
LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating
Partnership is managed and operated by its general partner. Unlike the holders
of common stock in a corporation, holders of OP Units have only limited voting
rights on matters affecting the AIMCO Operating Partnership's business. Holders
of OP Units have no right to elect the general partner on an annual or other
continuing basis, and the general partner may not be removed by holders of
limited partnership interests. As a result, holders of OP Units have limited
influence on matters affecting the operation of the AIMCO Operating Partnership
and third parties may find it difficult to attempt to gain control or influence
the activities of our operating partnership. Such matters affecting the
operation of the AIMCO Operating Partnership include liquidation and
distribution policies, property purchases, and potential mergers or
acquisitions. See "Comparison of Your Units and AIMCO OP Units -- Voting
Rights."
MARKET PRICES FOR AIMCO'S SECURITIES MAY FLUCTUATE. We cannot predict the
prices at which our stock will trade in the future. Recently, there have been
fluctuations in the trading prices for many REIT equity securities, including
ours.
LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire
interests in limited partnerships that own apartment properties. In some cases
(such as for your partnership), we have acquired the general
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partner of a partnership and then made an offer to acquire the limited partners'
interests in the partnership. There is a risk that we will be subject to
litigation based on claims that the general partner has breached its fiduciary
duties to its limited partners or that the transaction violates the relevant
partnership agreement. As a result, we may incur costs associated with defending
or settling such litigation or paying any judgment if we lose. As of the present
time, no limited partners of your partnership have initiated lawsuits on such
grounds.
DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited
number of additional OP Units or other securities for such consideration and on
such terms as we may establish, without the approval of the holders of OP Units.
Such securities could have priority over the OP Units as to cash flow,
distributions and liquidation proceeds. The effect of any such issuance may be
to dilute the interests of holders of OP Units.
RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER
POSSIBLE INCREASE IN CONTROL OF YOUR PARTNERSHIP BY US. Because your
general partner is a subsidiary of AIMCO, we control the management of your
partnership. In addition, if we acquire more units, we will increase our ability
to influence voting decisions with respect to your partnership. However, we will
not be able to control voting decisions unless we acquire more units in another
transaction, which cannot take place for at least one year after expiration of
this offer. Furthermore, in the event that we acquire a substantial number of
units pursuant to our offer, removal of your general partner (which is our
subsidiary) or the manager of any property owned by your partnership may become
more difficult or impossible without our consent.
RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR
PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your
partnership's liabilities is treated, for Federal income tax purposes, as a
deemed cash distribution. Although your general partner (which is our
subsidiary) has no current plan or intention to reduce the liabilities of your
partnership, it is possible that future economic, market, legal, tax or other
considerations may cause your general partner to reduce the liabilities of your
partnership. If the liabilities of your partnership were to be reduced, and you
do not tender all of your units pursuant to our offer, you will be treated as
receiving a hypothetical distribution of cash resulting from a decrease in your
share of the liabilities of your partnership. Any such hypothetical distribution
of cash would be treated as a nontaxable return of capital to the extent of your
adjusted tax basis in your units and thereafter as gain.
POSSIBLE TERMINATION OF YOUR PARTNERSHIP FOR FEDERAL INCOME TAX
PURPOSES. If there is a sale or exchange of 50% or more of the total interest in
capital and profits of your partnership within any 12-month period, including
sales or exchanges resulting from our offer, your partnership will terminate for
Federal income tax purposes. Any such termination may, among other things,
subject the assets of your partnership to longer depreciable lives than those
currently applicable. This would generally decrease the annual average
depreciation deductions allocable to you for a number of years if you do not
tender all of your units (thereby increasing the taxable income allocable to
your units in each such year), but would have no effect on the total
depreciation deductions available over the useful lives of the assets of your
partnership. Any such termination may also change (and possibly shorten) your
holding period with respect to your units that you choose to retain. Gain
recognized by you on the disposition of retained units with a holding period of
12 months or less may be classified as short-term capital gain and subject to
taxation at ordinary income tax rates.
RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's
agreement of limited partnership prohibits any transfer of units without the
consent of your general partner (which is our subsidiary). Such consent may be
withheld by your general partner in its sole discretion. Your general partner
may withhold its consent if such transfer would result in the termination of
your partnership for tax purposes which would occur if 50% or more of the total
interest in your partnership is transferred within a 12-month period. If we
acquire a significant percentage of the interest in your partnership, your
general partner may not consent to a transfer for a 12-month period following
our offer.
POSSIBLE CHANGE IN TIME FRAME REGARDING SALE OF PROPERTY. It is not known
when the property owned by your partnership may be sold. Therefore, there may be
no way to liquidate your investments in the partnership in the future until the
property is sold and your partnership is liquidated. You may continue to hold
the units not exchanged in this offer for an indefinite period of time. The
partnership currently owns
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one property. The general partner of your partnership continually considers
whether the property should be sold or otherwise disposed of after consideration
of relevant factors, including prevailing economic conditions, availability of
favorable financing and tax considerations, with a view to achieving maximum
capital appreciation for your partnership. We cannot predict when the property
will be sold or otherwise disposed of. However, there is no current plan or
intention to sell the property in the near future.
BALLOON PAYMENTS. Your partnership has approximately $6,259,792 of balloon
payments due on its mortgage debt in November 2002. Your partnership will have
to refinance such debt or sell its property prior to the balloon payment dates,
or it will be in default and could lose the property to foreclosure.
SPECIAL FACTORS TO CONSIDER
In reviewing the offer, you should pay special attention to the information
in the Sections entitled "Background and Reasons for the Offer," "Valuation of
Units," "Fairness of the Offer" and "Stanger Analysis," which contain
information regarding the background and reasons for the offer, the method of
evaluating units in the offer and alternative valuation methods considered, our
view as to the fairness of the offer, and the fairness opinion rendered by
Stanger.
BACKGROUND AND REASONS FOR THE OFFER
BACKGROUND OF THE OFFER
General
We are in the business of acquiring direct and indirect interests in
apartment properties such as the property owned by your partnership. Our offer
provides us with an opportunity to increase our ownership interest in your
partnership's property while providing you and other investors with an
opportunity to liquidate your current investment and to invest in our OP Units
or receive cash, or to retain your units.
On October 1, 1998, AIMCO merged (the "Insignia Merger") with Insignia
Financial Group, Inc. ("Insignia"). As a result of the Insignia Merger, AIMCO
acquired approximately 51% of the outstanding common shares of beneficial
interest of Insignia Properties Trust ("IPT"). The general partner of your
partnership is a wholly owned subsidiary of IPT. Through the Insignia Merger,
AIMCO also acquired a majority ownership interest in the entity that manages the
properties owned by your partnership. Through subsidiaries, AIMCO currently
owns, in the aggregate, approximately a 0.992% interest, consisting of a 0%
limited partnership interest and a 0.992% general partnership interest, in your
partnership.
On October 31, 1998, IPT and AIMCO entered into an agreement and plan of
merger, dated as of October 1, 1998 (the "IPT Merger Agreement"), pursuant to
which IPT merged with AIMCO on February 26, 1999 (the "IPT Merger"). Upon
consummation of the IPT Merger, each outstanding share of IPT not owned by AIMCO
was converted into the right to receive 0.3601 shares of AIMCO's Class A Common
Stock (approximately 4,180,000 shares in the aggregate).
One of the reasons we chose to acquire Insignia is that we would be able to
make the exchange offers to acquire limited partnership interests of some of the
limited partnerships formerly controlled or managed by Insignia (the "Insignia
Partnerships"). Such offers would provide liquidity for the limited partners of
the Insignia Partnerships, and would provide the AIMCO Operating Partnership
with a larger asset and capital base and increased diversification. As of the
date of this offering, the AIMCO Operating Partnership proposes to make offers
to approximately 90 of the Insignia Partnerships, including your partnership.
During our negotiations with Insignia in early 1998, we decided that if the
merger with Insignia were consummated, we could also benefit from making offers
for limited partnership interests in the Insignia Partnerships. While some of
the Insignia Partnerships are public partnerships and information is publicly
available on such partnerships for weighing the benefits of making an exchange
offer, many of the partnerships are private partnerships and information about
such partnerships comes principally from the general partner. Our control of the
general partner makes it possible to obtain access to such information. Further,
such
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control also means that we control the operations of the partnerships and their
properties. Insignia did not propose that we conduct such exchange offers,
rather we initiated the offers on our own. We determined in June of 1998 that if
the merger with Insignia were consummated, we would offer to limited partners of
the Insignia Partnerships limited partnership units of the AIMCO Operating
Partnership and/or cash.
In connection with the Insignia Merger we acquired general partnership
interests and certain limited partnership interests in a number of private and
public partnerships. Eight private partnerships out of the 90 partnerships
involved in the proposed exchange offers do not have audited financial
statements prepared in accordance with generally accepted accounting practices
("GAAP"). Certain of these partnerships have audited financial statements
prepared on the basis of federal income taxes and others have unaudited
financial statements which may or may not be prepared on the basis of GAAP or
federal income taxes. For the Insignia Partnerships for which exchange offers
are being made which do not have audited GAAP financial statements for at least
two years, we are making the offer on the basis of either one year of audited
GAAP financial statements and one year of unaudited GAAP financial statements or
just unaudited GAAP financial statements. We tried to obtain two years of
audited GAAP financial statements for all the partnerships for which offers are
being made, but because of the inability to locate records from inception of the
partnerships which would allow auditors to verify the original purchase price of
the properties, no audits were possible. In these cases, the entities which
controlled the general partners prior to Insignia are no longer in business or
have no current knowledge or records of such partnerships. For the same reasons,
we do not have all the records for past years of some of the partnerships.
Therefore, for the partnerships without an audit, we did not have invoices,
escrow statements, property closing statements or the like to support the
original costs of the real property to the satisfaction of independent auditors,
in order for them to render an unqualified audit report. Consequently, we have
no way to support the original cost of the properties. However, we have general
ledgers and related accounting records that enable us to prepare GAAP basis
financial statements. These records were taken from the entities that controlled
the general partners and were subsequently maintained by us. The amount of
capitalized property costs appearing in those books and records has, to our
knowledge, been appropriately rolled forward from year to year and used by the
general partners of the partnerships in question to prepare tax returns and
periodic reports to the investors in the partnerships. Therefore, we believe
that the unaudited financial statements included in the prospectus supplements
for such partnerships have been prepared in accordance with GAAP.
In acquiring Insignia and the interests in the Insignia Partnerships, we
conducted due diligence with regard to certain of the assets acquired including
the major properties held by the Insignia Partnerships. Our due diligence
focused on the condition of the major properties and the terms of the
partnership agreements. Since Insignia had audited GAAP financial statements and
since those partnerships without audited GAAP financial statements are generally
smaller, we did not focus on the issue of audited GAAP based financial
statements for the smaller partnerships at the time of the merger. Further, for
our internal due diligence use, audited tax based financial statements are also
used. The total number of Insignia Partnerships we acquired an interest in was
approximately 550 of which approximately 25 do not have audited GAAP statements.
We were not able to pick and choose the partnerships in which we would acquire
an interest. The Insignia Partnerships were part of the business of Insignia. As
a consequence, we acquired interests in certain small private partnerships which
do not have the ability to obtain audited GAAP financial statements. It is our
policy to acquire properties or partnerships with audited GAAP based financial
statements. However, in connection with large acquisitions of partnerships
interests, such as with the Insignia Merger, we may occasionally acquire a
partnership or property without audited GAAP financial statements.
Previous Tender Offers
Tender offers have been previously made with respect to certain of the
public Insignia Partnerships. However, there have not been any prior tender
offers to acquire units of your partnership. Except for such tender offers, we
are not aware of any merger, consolidation or other combination involving any of
the Insignia Partnerships, or any acquisitions of any of such partnerships or a
material amount of the assets of such partnerships.
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Engagement of Fairness Opinion Provider
The AIMCO Operating Partnership contacted Stanger in August 1998 to discuss
the possibility of Stanger providing a fairness opinion for our offer. The AIMCO
Operating Partnership chose Stanger based on Stanger's expertise and strong
reputation in this area of work. The parties entered into a definitive agreement
dated August 28, 1998 with Stanger to provide such a fairness opinion for your
partnership and other partnerships.
ALTERNATIVES CONSIDERED
The following is a brief discussion of the benefits and disadvantages of
alternatives to our offer that could have been pursued by your general partner
(which is our subsidiary).
Liquidation
Benefits of Liquidation. One alternative to our offer would be for your
partnership to sell its assets, distribute the net liquidation proceeds to its
partners in accordance with your partnership's agreement of limited partnership,
and then dissolve. Partners would be at liberty to use the net liquidation
proceeds after taxes for investment, business, personal or other purposes, at
their option. If your partnership were to sell its assets and liquidate, you and
your partners would not need to rely upon capitalization of income or other
valuation methods to estimate the fair market value of your partnership's
assets. Instead, such assets would be valued through negotiations with
prospective purchasers (in many cases unrelated third parties).
Disadvantages of Liquidation. A liquidating sale of part or all of your
partnership's property would be a taxable event for you and your partners and
could result in significant amounts of taxable income to you and your partners.
In the opinion of your general partner (which is our subsidiary), the present
time may not be the most desirable time to sell the real estate assets of your
partnership in private transactions, and any liquidation sale would be
uncertain. Liquidation of the partnership's assets may trigger a substantial
prepayment penalty on the order of 1% of the principal amount of the mortgage.
Your general partner believes it currently is in the best interest of your
partnership to continue holding its real estate assets.
Continuation of the Partnership Without the Offer
Benefits of Continuation. Although our offer permits you to continue your
investment in your partnership, a second alternative would be for your
partnership to continue as a separate legal entity, with its own assets and
liabilities and continue to be governed by its existing agreement of limited
partnership, without our offer. A number of advantages could result from the
continued operation of your partnership. Given improving rental market
conditions, the level of distributions might increase over time. Your
partnership's net income has increased from a loss of $24,234 for the nine
months ended September 30, 1997, to a net income of $93,209 for the nine months
ended September 30, 1998. It is possible that the private resale market for
apartment and retail properties could improve over time, making a sale of your
partnership's property in a private transaction at some point in the future a
more viable option than it is currently. The continuation of your partnership
will allow you to continue to participate in the net income and any increases of
revenue of your partnership and any net proceeds from the sale of any property
owned by your partnership.
Disadvantages of Continuation. There are several risks and disadvantages
that result from continuing the operations of your partnership without our
offer. If your partnership continues operating as presently structured, your
partnership could be forced to borrow on terms that could result in net losses
from operations. Your partnership's mortgage notes are due in November 2002 and
require balloon payments totaling $6,259,792. Your partnership currently has
adequate sources of cash to finance its operations on both a short term and long
term basis. Continuation of your partnership without the offer would deny you
and your partners the benefits that your general partner (which is our
subsidiary) expects to result from the offer. For example, you would have no
opportunity for liquidity unless you were to sell your units in a private
transaction. Any such sale would likely be at a very substantial discount from
your pro rata share of the fair market value of your partnership's property.
Continuation without our offer would deny you and your
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partners the benefits of diversification into a company which has a much larger
and more diverse portfolio of apartment properties.
Alternative Structures Considered
Before we decided to make our offer, we considered a number of alternative
transactions, including purchasing some or all of your partnership's properties;
making an offer of only cash for your units; making an offer of only Common OP
Units for your units; and making an offer of only Preferred OP Units for your
units. A merger would require a vote of the limited partners of your
partnership. If the merger was approved, all limited partners, including those
who wish to retain their units and continue to participate in your partnership,
would be forced to participate in the merger transaction. If the merger was not
approved, all limited partners, including those who would like to liquidate
their investment in your partnership, would be forced to retain their units.
We also considered purchasing your partnership's properties from your
partnership. However, a sale of your partnership's property would require a vote
of a majority of the limited partners. If the sale was approved, all limited
partners, including those who wish to continue to participate in the ownership
of your partnership's properties, would be forced to participate in the sale
transaction, and possibly to recognize taxable income. If the sale was not
approved, all limited partners, including those who would like to dispose of
their investment in your partnership's properties, would be forced to retain
their investment.
In order to give all limited partners in your partnership an opportunity to
make their own investment decision, we elected to make an offer directly to you
and the other limited partners. We considered making an all cash offer in order
to satisfy some limited partners' desire for immediate liquidity. However, an
all cash offer would not be desirable for those limited partners who do not
desire immediate liquidity and do not want to immediately recognize any taxable
income, but might otherwise be interested in disposing of their investment in
your partnership and might want an opportunity to control the timing of any
realization of taxable income associated with liquidating such investment in the
future.
We considered making an offer of only OP Units, either all Common OP Units
or all Preferred OP Units. The primary disadvantage of an all OP Unit offer is
that those limited partners who want immediate liquidity would be forced to wait
at least one year before exchanging their OP Units for cash or AIMCO stock. We
decided to offer limited partners both Common OP Units and Preferred OP Units in
order to permit investors to make their own decision as to whether they
preferred the possibility of future capital appreciation (Common OP Units) or
preferred distribution rights (Preferred OP Units).
After considering these alternatives, we decided to offer limited partners
the possibility of all three forms of consideration: cash, Common OP Units and
Preferred OP Units. We think that such an offer will appeal to a large number of
limited partners in your partnership, while permitting each one to retain any or
all of his or her units and remain a limited partner in your partnership on the
same terms as before.
Sale of Assets
Your partnership could sell the property it owns. The general partner of
your partnership considers sale of your partnership's property from time to
time. However, any such sale would likely be a taxable transaction.
EXPECTED BENEFITS OF THE OFFER
We are in the business of acquiring direct and indirect interests in
apartment properties such as the property owned by your partnership. Our offer
provides us with an opportunity to increase our ownership interest in the
property owned by your partnership while providing you and other investors with
an opportunity to retain or liquidate your investment or to invest in the AIMCO
Operating Partnership.
There are four principal advantages of tendering your units for Preferred
OP Units:
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Preferred OP Units.
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- Enhanced Liquidity After One Year. While holders of the Preferred OP
Units must hold such units for one year, subject to certain exceptions,
after a one-year holding period, you may choose to redeem your Preferred
OP Units and receive, at our option, shares of AIMCO's Class A Common
Stock or cash. After a two-year holding period, if you choose to redeem
your Preferred OP Units, you may receive, at our option, cash, shares of
AIMCO's Class I Preferred Stock or shares of AIMCO's Class A Common
Stock. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred
Stock is expected to be, currently listed and traded on the NYSE.
- Preferred Quarterly Distributions. Your partnership paid no distributions
for the fiscal year ended December 31, 1998. Holders of Preferred OP
Units will be entitled to receive quarterly distributions of $0.50 per
unit (equivalent to $2.00 on an annualized basis) before any
distributions are paid to holders of Common OP Units. This is equivalent
to a distribution of $8.00 per year on the number of Preferred OP Units
you will receive in exchange for each of your partnership units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
There are five principal advantages of tendering your units for Common OP
Units:
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Common OP Units.
- Enhanced Liquidity After One Year. While the holders of the Common OP
Units must hold such units for one year, subject to certain exceptions,
after a one-year holding period, you may choose to redeem your Common OP
Units and receive, at our option, shares of AIMCO's Class A Common Stock
(on a one-for-one basis, subject to adjustment in certain circumstances)
or an equivalent amount of cash. AIMCO's Class A Common Stock is listed
and traded on the NYSE.
- Quarterly Distributions. Your partnership paid no distributions for the
fiscal year ended December 31, 1998. In 1998, we paid quarterly
distributions on the Common OP Units totalling $2.25. In January 1999, we
increased our distribution rate on each of the Common OP Units to $2.50
on an annual basis. Assuming no change in the level of our distributions,
this is equivalent to a distribution of $6.88 per year on the number of
Common OP Units you will receive in exchange for each of your partnership
units. See "The AIMCO Operating Partnership."
- Growth Potential. Our assets, organizational structure and access to
capital enables us to pursue acquisition and development opportunities
that are not available to your partnership. You would have the
opportunity to participate in the growth of our enterprise and would
benefit from any future increase in the AIMCO stock price and from any
future increase in distributions on the Common OP Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
The principal advantage if you tender your units for cash is immediate
liquidity. However, tendering your units for cash may cause you to recognize
taxable gain for Federal income tax purposes.
DISADVANTAGES OF THE OFFER
The principal disadvantages to the offer are:
- Lack of Independent Price Determination. We determined the offer price
and the terms of the offer, including the exchange ratio for Common OP
Units and Preferred OP Units, and the terms of the Preferred OP Units and
the Class I Preferred Stock. The terms of the offer and the nature of the
securities could differ if they were subject to independent third party
negotiations. We determined the offering price and asked Stanger to
determine if the price was fair. We did not ask Stanger to determine a
fair price.
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- No Separate Representation of Limited Partners. In structuring the offer
and the consideration, no one separately represented the interests of the
limited partners. Although we have a fiduciary duty to the limited
partners, we also have conflicting responsibilities to our equity
holders. We did not appoint, or ask the limited partners to appoint, a
party to represent only their interests.
- No Proposal to Sell the Property. We are not proposing to try to
liquidate the partnership and sell the partnership's property and
distribute the net proceeds. An arms-length sale of the property after
offering it for sale through licensed real estate brokers might be a
better way to determine the true value of the property rather than the
method we chose. The sale of the property and the liquidation of the
partnership might result in greater pre-tax cash proceeds to you than our
offer.
- OP Units. Investing in OP Units has risks that include the lack of a
public market, transfer restrictions and a one year holding period before
they can be redeemed by a holder. The ultimate return on the OP Units is
directly tied to the future price of AIMCO's Class A Common Stock or
Class I Preferred Stock. You could ultimately receive less for your OP
Units than the cash price in our offer. Further, on or after March 1,
2005, we may redeem the Class I Preferred Stock for $25 per share.
- Continuation of the Partnership. We are proposing to continue to operate
your partnership and not to attempt to liquidate it at the present time.
Thus, our offer does not satisfy any expectation that you would receive
the return of your investment in the partnership through a sale of the
property at the present time. At the current time we do not believe that
the sale of the property would be advantageous given market conditions,
the condition of the property and tax considerations. In particular, we
considered the changes in the local rental market, the potential for
appreciation in the value of a property and the tax consequences to you
and your partners on a sale of a property. See also "Your
Partnership -- General Policy Regarding Sales and Refinancings of
Partnership Property."
- POSSIBLE RECOGNITION OF TAXABLE GAIN. If you exercise your redemption
right with respect to the OP Units within two years of the date that you
transfer your units to the AIMCO Operating Partnership, your exchange of
units for OP Units and cash could be treated as a disguised sale of your
units and you would be required to recognize gain or loss in the year of
the exchange on such disguised sale. See "Federal Income Tax
Consequences -- Disguised Sales."
For a description of certain risks of our offer, see "Risk Factors."
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VALUATION OF UNITS
We determined our cash offer consideration by estimating the value of the
property owned by your partnership using the direct capitalization method. This
method involves applying a capitalization rate to your partnership's annual
property income. A capitalization rate is a percentage (rate of return),
commonly applied by purchasers of residential real estate to property income to
determine the present value of income property. The lower the capitalization
rate utilized the higher the value produced, and the higher the capitalization
rate utilized the lower of the value produced. We used your partnership's
property income for the fiscal year ended December 31, 1997. However, in
determining the appropriate capitalization rate, we considered the partnership's
property income since December 31, 1997. Our method for selecting a
capitalization rate begins with each property being assigned a location and
condition rating (e.g., "A" for excellent, "B" for good, "C" for fair, and "D"
for poor). We have rated your property's location A (excellent) and its
condition C (fair). Generally, we assign an initial capitalization rate of
10.25% to properties in this category. We then adjust the capitalization rate
based on whether the mortgage debt that the property is subject to bears
interest at a rate above or below 7.5% per annum. Generally, for every 0.5% in
excess of 7.5%, the capitalization rate would be increased by 0.25%. Your
property's mortgage debt bears interest at 7.60% per annum, which resulted in an
increase from the initial capitalization rate of 0.25%. We also considered any
changes in your partnership's property income from 1997 to 1998. Because your
partnership's property income in 1998 remained relatively unchanged compared to
1997, we made no further revision of the capitalization rate, resulting in a
final capitalization rate of 10.50%. The evaluation of a property's location and
condition, and the determination of an appropriate capitalization rate for a
property, is subjective in nature, and others evaluating the same property might
use a different capitalization rate and derive a different property value. The
property income is the difference between the revenues from the property and
related costs and expenses, excluding income derived from sources other than its
regular activities and before income deductions. Income deductions include
interest, income taxes, prior-year adjustments, charges to reserves, write-offs
of intangibles, adjustments arising from major changes in accounting methods and
other material and nonrecurrent items. In this respect, property income differs
from net income disclosed in the partnership's financial statements, which does
not exclude these income sources and deductions. The following is a
reconciliation of your partnership's net income for the year ended December 31,
1997, to your partnership's property income for the same period.
<TABLE>
<S> <C>
Net Income (Loss)........................................... $ 163,481
Other Non-Operating Expense................................. (139,482)
Depreciation................................................ 210,385
Interest.................................................... 666,616
---------
Property income............................................. $ 901,000
</TABLE>
Although the direct capitalization method is a widely accepted way of
valuing real estate, there are a number of other methods available to value real
estate, each of which may result in different valuations of a property. Further,
in applying the direct capitalization method, others may make different
assumptions and obtain different results. The proceeds that you would receive if
you sold your units to someone else or if your partnership were actually
liquidated might be higher or lower than our cash offer consideration. We
determined your partnership's value as follows:
- First, we estimated the value of the property owned by your partnership
using the direct capitalization method. We selected capitalization rates
based on our experience in valuing similar properties. The lower the
capitalization rate applied to a property's income, the higher its value.
We considered local market sales information for comparable properties,
estimated actual capitalization rates (property income less capital
reserves divided by sales price) and then evaluated each property in
light of its relative competitive position, taking into account property
location, occupancy rate, overall property condition and other relevant
factors. The AIMCO Operating Partnership believes that arms-length
purchasers would base their purchase offers on capitalization rates
comparable to those used by us, however there is no single correct
capitalization rate and others might use different rates. We divided
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fiscal 1997 property income of $901,000 by the property's capitalization rate of
10.50% to derive an estimated gross property value of $8,581,000.
- Second, we calculated the value of the equity of your partnership by
adding to the aggregate gross property value of all properties owned by
your partnership, the value of the non-real estate assets of your
partnership, and deducting the liabilities of your partnership, including
mortgage debt and debt owed by your partnership to its general partner or
its affiliates after consideration of any applicable subordination
provisions affecting payment of such debt. We deducted from this value
certain other costs including required capital expenditures, deferred
maintenance, and closing costs to derive a net equity value for your
partnership of $4,599. Closing costs, which are estimated to be 2.5% of
the gross property value, include legal and accounting fees, real
property, transfer taxes, title and escrow costs and broker's fees.
- Third, using this net equity value, we determined the proceeds that would
be paid to holders of units in the event of a liquidation of your
partnership, based on the terms of your partnership's agreement of
limited partnership. We believe that if your partnership was liquidated
there would not be enough value to fully discharge all known liabilities.
We have, however, decided to offer you $100 per unit.
<TABLE>
<S> <C>
Property income............................................. 901,000
Capitalization rate......................................... 10.50%
----------
Gross valuation of partnership property..................... 8,581,000
Plus: Cash and cash equivalents............................. 176,609
Plus: Other partnership assets, net of security deposits.... 482,074
Less: Mortgage debt, including accrued interest............. (7,610,802)
Less: Accounts payable and accrued expenses................. (403,728)
Less: Other liabilities..................................... (78,658)
----------
Partnership valuation before taxes and certain costs........ 1,146,495
Less: Disposition fees...................................... 0
Less: Extraordinary capital expenditures and deferred
maintenance............................................... (1,365,920)
Less: Closing costs......................................... (214,525)
----------
Estimated net valuation of your partnership................. 0
Percentage of estimated net valuation allocated to holders
of units.................................................. 0.00%
Estimated net valuation of units............................ 0
Total number of units............................. 46.0
----------
Estimated valuation per unit................................ 0
==========
Cash consideration per unit................................. 100
==========
</TABLE>
- In order to determine the number of Preferred OP Units we are offering
you, we divided the cash offer consideration of $100 by the $25
liquidation preference of each Preferred OP Unit to get 400 Preferred OP
Units per unit.
- In order to determine the number of Common OP Units we are offering for
each of your units, we divided the cash offer consideration of $100 by a
price of $37.63 (the average closing price of AIMCO's Class A Common
Stock on the NYSE for the 30 trading days ended on March 24, 1999) to get
2.75 Common OP Units per unit.
The total net valuation of all partnerships in which the AIMCO Operating
Partnership is making similar exchange offers, and which were valued using the
same methods as used for your partnership, is $568,751,183, of which, $0 or
0.00% is the net valuation of your partnership.
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FAIRNESS OF THE OFFER
POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER;
FAIRNESS
Your general partner is a subsidiary of the AIMCO Operating Partnership. As
a result, your general partner has a conflict of interest and makes no
recommendation to you as to whether you should tender or refrain from tendering
your units. Your general partner did not participate in the structuring of the
offer and has substantial conflicts of interest with regard to the offer.
However, for all of the reasons discussed herein, we and your general partner
believe that the offer and all forms of consideration offered is fair to you and
the limited partners of your partnership. We also reasonably believe that the
similar offers to the limited partners of the other partnerships are fair to
such limited partners. The AIMCO Operating Partnership has retained Stanger to
conduct an analysis of the offer and to render an opinion as to the fairness to
unitholders of the offer consideration from a financial point of view. Stanger
is not affiliated with us or your partnership. Stanger is one of the leaders in
the field of analyzing and evaluating complex real estate transactions. However,
we provided much of the information used by Stanger in forming its fairness
opinion. We believe the information provided to Stanger is accurate in all
material respects. See "Stanger Analysis." You should make your decision whether
to tender based upon a number of factors, including your financial needs, other
financial opportunities available to you and your tax position.
The terms of our offer have been established by us and are not the result
of arms-length negotiations. In evaluating the fairness of the offer, your
general partner (which is our subsidiary) and the AIMCO Operating Partnership
considered the following factors and information:
1. The opportunity for you to make an individual decision on whether to
tender your units in the offer and that the offer allows each investor to
continue to hold his or her units.
2. The estimated value of your partnership's property has been
determined based on a method believed to reflect the valuation of such
assets by buyers in the market.
3. An analysis of the possible alternatives including liquidation and
continuation without the option of the offer. See "Background and Reasons
for the Offer -- Alternatives Considered."
4. An evaluation of the financial condition and results of operations of
your partnership and the AIMCO Operating Partnership and their anticipated
level of operating results. The offer is not expected to have an effect on
your partnership's financial condition or results of operations. The net
income of your partnership has increased from a loss of $24,234 for the
nine months ended September 30, 1997 to a net income of $93,209 for the
nine months ended September 30, 1998. These factors are reflected in our
valuation of your partnership.
5. The method of determining the offer consideration which is intended
to provide you with OP Units or cash that are substantially the financial
equivalent to your interest in your partnership. See "Valuation of Units."
6. The opinion of Stanger, an independent third party, that the offer
consideration is fair to holders of units from a financial point of view
and Stanger's estimates of the net asset value ($100 per unit), going
concern value ($100 per unit) and liquidation value ($100 per unit) of your
partnership units. See "Stanger Analysis"
7. The fact that the units are illiquid and the offer provides holders
of units with liquidity. However, we did review whether trading information
was available.
8. The fact that the offer generally provides holders of units with the
opportunity to receive both cash and OP Units together.
9. The fact that the offer provides holders of units with the
opportunity to defer taxes by electing to accept Preferred OP Units or
Common OP Units.
10. An evaluation of the market price of the Class A Common Stock and
the limited information on prices at which Common OP Units and units are
transferred. See "Your Partnership -- Distributions
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and Transfers of Units." No assurance can be given that the Class A Common
Stock will continue to trade at its current price.
11. The estimated unit value of $100, based on a total estimated value
of your partnership's property of $8,581,000. Your general partner (which
is our subsidiary) has no present intention to liquidate your partnership
or to sell or refinance your partnership's property. See "Background and
Reasons for the Offer". See "Valuation of Units" for a detailed explanation
of the methods we used to value your partnership.
12. Anticipated annualized distributions with respect to the Preferred
OP Units are $2.00 and current annualized distributions with respect to the
Common OP Units are $2.50. This is equivalent to distributions of $8.00 per
year on the number of Preferred OP Units, or distributions of $6.88 per
year on the number of Common OP Units, that you would receive in exchange
for each of your partnership's units. Distributions with respect to your
units for the fiscal year ended December 31, 1998 were $0. See "Comparison
of Your Units and AIMCO OP Units -- Distributions."
13. The fact that if your partnership were liquidated as opposed to
continuing, the general partner (which is our subsidiary) would not receive
the substantial management fees it currently receives. As discussed in
"Fairness of the Offer -- Comparison of Consideration to Alternative
Consideration -- Estimated Liquidation Proceeds," we do not believe that
liquidation of the partnership is in the best interests of the unitholders.
Therefore, we believe the offer is fair in that the fees paid to the
general partner would continue even if the offer was not consummated. We
are not proposing to change the current management fee arrangement.
In evaluating these factors, your general partner (which is our subsidiary)
and the AIMCO Operating Partnership did not quantify or otherwise attach
particular weight to any of them.
Your general partner (which is our subsidiary) has not retained an
unaffiliated representative to act on behalf of the limited partners in
negotiating the terms of the offer since each individual limited partner can
make his own decision as to whether or not to tender and what consideration to
take. Unlike a merger or other form of partnership reorganization, a majority or
more of the holders of limited partnership interests in your partnership cannot
bind you. If an unaffiliated representative had been obtained, it is possible
that such representative could have negotiated a higher price for your units
than was unilaterally offered by the AIMCO Operating Partnership. We have
retained Stanger to conduct an analysis of our offer and to render an opinion as
to the fairness to you of the offer consideration from a financial point of
view. Although no representative has been retained to act solely on behalf of
the limited partners for purposes of negotiating the terms of the offer, we have
determined that the transaction is fair to you from a financial point of view.
We made this determination based, in part, on the fairness opinion from Stanger
and the fact that all limited partners may elect to retain their existing
security on the same terms as before our offer.
FAIRNESS TO UNITHOLDERS WHO TENDER THEIR UNITS
Your general partner (which is our subsidiary) makes no recommendation as
to whether you should tender or refrain from tendering your units. The terms of
the offer have been established by the AIMCO Operating Partnership and are not
the result of arms-length negotiations. See "Conflicts of Interest." The general
partner of your partnership and the AIMCO Operating Partnership believe that the
valuation method described in "Valuation of Units" provides a meaningful
indication of value for residential apartment properties and, although there are
other ways to value real estate, is a reasonably fair method to determine the
consideration offered. Although we believe our offer consideration represents
the amount you would receive if we currently liquidated your partnership, an
actual liquidation might generate a higher or lower price for holders of units.
A liquidation in the future might generate a higher or lower price for holders
of units.
The future value of the OP Units received in the offer will depend on some
of the same factors that will affect the value of the units, primarily the
condition of the real estate markets. However, if you exchange your units for OP
Units, you will be able to liquidate your investment only by tendering your OP
Units for
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redemption after a one-year holding period or by selling your OP Units, which
may preclude you from realizing the full value of your investment.
FAIRNESS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS
Your general partner (which is our subsidiary) makes no recommendation as
to whether you should tender or refrain from tendering your units. If you choose
not to tender any units, your interest in your partnership will remain
unchanged. The identity of the other limited partners of your partnership may
change. If the AIMCO Operating Partnership acquires a substantial number of
units pursuant to the offer, AIMCO may be in a position to influence voting
decisions with respect to your partnership. AIMCO has no present intention to
sell your partnership's property or refinance its indebtedness within any
specified time period.
COMPARISON OF CONSIDERATION TO ALTERNATIVE CONSIDERATION
General
To assist holders of units in evaluating the offer, your general partner
(which is our subsidiary) has attempted to compare the cash offer consideration
against: (a) estimates of the value of the units on a liquidation basis; (b)
estimates of the going concern value of your units based on continuation of your
partnership as a stand-alone entity; (c) the net book value of your units; and
(d) the recent appraisal of your partnership's property. The general partner of
your partnership believes that analyzing the alternatives in terms of estimated
value, based upon currently available data and, where appropriate, reasonable
assumptions made in good faith, establishes a reasonable framework for comparing
alternatives. Since the value of the consideration for alternatives to the offer
is dependent upon varying market conditions, no assurance can be given that the
estimated values reflect the range of possible values. See "Valuation of Units."
The results of these comparative analyses are summarized in the following
chart. You should bear in mind that the estimated values assigned to the
alternate forms of consideration are based on a variety of assumptions that have
been made by us. These assumptions relate to, among other things: the operating
results since December 31, 1997 as to income and expenses of each property,
other projected amounts and the capitalization rates that may be used by
prospective buyers if your partnership assets were to be liquidated. The 1998
budget is discussed in "Stanger Analysis -- Summary of Materials Considered" and
other projected amounts are discussed in "Stanger Analysis -- Summary of
Reviews."
In addition, these estimates are based upon certain information available
to your general partner (which is our subsidiary) at the time the estimates were
computed, and no assurance can be given that the same conditions analyzed by it
in arriving at the estimates of value would exist at the time of the offer. The
assumptions used have been determined by the general partner of your partnership
in good faith, and, where appropriate, are based upon current and historical
information regarding your partnership and current real estate markets, and have
been highlighted below to the extent critical to the conclusions of the general
partner of your partnership. Actual results may vary from those set forth below
based on numerous factors, including interest rate fluctuations, tax law
changes, supply and demand for similar apartment properties, the manner in which
your partnership's property is sold and changes in availability of capital to
finance acquisitions of apartment properties.
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Under your partnership's agreement of limited partnership, the term of the
partnership will continue until December 31, 2008, unless sooner terminated as
provided in the agreement or by law. Limited partners could, as an alternative
to tendering their units, take a variety of possible actions, including voting
to liquidate the partnership or amending the agreement of limited partnership to
authorize limited partners to cause the partnership to merge with another entity
or engage in a "roll-up" or similar transaction.
COMPARISON TABLE
<TABLE>
<CAPTION>
PER UNIT
--------
<S> <C>
Cash offer price............................................ $ 100
Partnership preferred units................................. $ 100(1)
Partnership common units.................................... $ 100(1)
Alternatives:
Estimated liquidation proceeds............................ $ 0
Estimated going concern value............................. $ 0(2)
Estimated alternative going concern value................. $ 0(3)
Net book value (deficit).................................. $(75,395)
Estimated liquidation value based on appraised property
value.................................................. $ 1,520
</TABLE>
- ---------------
(1) In our discussion of the offer price as being fair with regard to other
methods of valuing your partnership, we believe the number of Common OP
Units and Preferred OP Units to be issued per unit in the offer to be equal
to the cash price per unit. Therefore, the fairness discussion applies
equally to the cash and non-cash forms of consideration being effected. See
"Valuation of Units" for details of how the number of OP Units was
determined.
(2) Assumes a refinancing of the partnership property's mortgage when it comes
due.
(3) Assumes a sale of the partnership property when mortgage is due, rather than
a refinancing of the mortgage.
Prices on Secondary Market
There is no active market for your units. Your general partner (which is
our subsidiary) is unaware of any secondary market activity in the units.
Therefore any comparison to prices on the secondary market is not possible at
the present time. See "Your Partnership -- Distributions and Transfers of
Units -- Transfers."
Prior Tender Offers
There have been no previous tender offers for units of your partnership.
Appraisal
Your partnership's property was appraised in August 1997 by an independent
third party appraiser, R.A. Jackson Appraisal Co., Inc. (the "Appraiser"), in
connection with a hearing before the Hamilton County Board of Revisions not in
connection with the offer. According to the appraisal reports, the scope of the
appraisals included an inspection of the property and an analysis of the
surrounding market. The Appraiser relied principally on the income
capitalization approach to valuation and secondarily on the sales comparison
approach and cost appraisal, and represented that its report was prepared in
accordance with the Code of Professional Ethics and Standards of Professional
Appraisal Practice of the Appraisal Institute and the Uniform Standards of
Professional Appraisal Practice. The estimated market value of the fee simple
estate specified in the report was 9,100,000.
The total appraised value of the property is $9,100,000. However, the
appraisal does not reflect the mortgage encumbering the property of $7,480,000
(including interest), other assets and liabilities of the partnership or any
costs of sales of the property as reflected in "Valuation of Units." However,
using the appraisal amount instead of the "estimated gross valuation of your
partnership's property" in the table in the
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"Valuation of Units" would result in a higher amount per unit than our offer.
Previously, an affiliate of your general partner relied on such appraisal
amounts to prepare for a hearing before the Hamilton County Board of Revision.
If this appraised value was used as the gross valuation of partnership property,
the liquidation value of your units would be $1,520 per unit.
We believe that, based on the condition of the property, the appraisals
substantially overstate its value. The appraisals did not take into account the
deferred maintenance costs of the partnership's property. Therefore, we believe
that the appraisals are less meaningful in assessing the fairness of our offer
consideration than the analysis described above under "Valuation of Units." On
this basis, we believe that our offer consideration is fair in relation to such
appraisal amounts. The Appraiser performed the real estate appraisals in the
normal course of its business and the executive officers who rendered the report
are members of the Appraisal Institute. The Appraiser has conducted other
appraisals of property held by our affiliates. No limitations were imposed on
the Appraiser by the general partner. A copy of the appraisals may be obtained
by contacting the Information Agent at the address and telephone numbers set
forth on the back cover page of this Prospectus Supplement.
Estimated Liquidation Proceeds
Liquidation value is a measure of the price at which the assets of your
partnership would sell if disposed of in an arms-length transaction between a
willing buyer and your partnership, each having access to relevant information
regarding the historical revenues and expenses of the business. Your general
partner (which is our subsidiary) estimated the liquidation value of units using
the same direct capitalization method and assumptions as we did in valuing the
units for the cash offer consideration. See "Valuation of Units." The
liquidation analysis also assumed that your partnership's property was sold to
an independent third-party buyer at the current property value and that other
balance sheet assets (excluding amortizing assets) and liabilities of your
partnership were sold at their book value, and that the net proceeds of sale
were allocated to your partners in accordance with your partnership's agreement
of limited partnership.
The liquidation analysis assumes that the assets of your partnership are
sold in a single transaction. Should the assets be liquidated over time, even at
prices equal to those projected, distributions to limited partners from cash
flow from operations might be reduced because your partnership's relatively
fixed costs, such as general and administrative expenses, are not
proportionately reduced with the liquidation of assets. However, for
simplification purposes, the sales of the assets are assumed to occur
concurrently. The liquidation analysis assumes that the assets would be disposed
of in an orderly manner and not sold in forced or distressed sales where sellers
might be expected to dispose of their interests at substantial discounts to
their actual fair market value.
Estimated Going Concern Value and Alternative Going Concern Value
Going concern value is a measure of the value of your partnership if it
continued operating as an independent stand-alone entity. The estimated value of
the partnership on a going concern basis is not intended to reflect the
distributions payable to limited partners if its assets were to be sold at their
current fair market value. The general partner of your partnership estimated the
going-concern value of your partnership by analyzing projected cash flows and
performing a discounted cash flow analysis. The general partner of your
partnership assumed that your partnership will be operated in the same manner as
currently, as an independent stand-alone entity, and its assets sold in a
liquidation after a ten-year holding period. Distribution and sale proceeds per
partnership unit were discounted in the projections at a rate of 40%.
The general partner of your partnership assumed that real estate selling
costs will be incurred which will equal 3.0% of the sales price. This analysis
assumes that the partnership property will be sold in a liquidation, at the
expiration of the ten-year holding period, to an independent third-party buyer.
Upon such liquidation, other balance sheet assets (excluding amortizing assets)
and liabilities of your partnership will be sold at their book value, and the
net proceeds of sale will be allocated between the general partners and offerees
in accordance with your partnership's agreement of limited partnership. Should
the assets be liquidated over time, even at prices equal to those projected,
distributions to limited partners of your partnership's cash flow
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from operations might be reduced because relatively fixed costs, such as general
and administrative expenses, are not proportionately reduced with the
liquidation of assets. However, for simplification purposes, the sales are
assumed to occur concurrently.
The going concern method relies on a number of assumptions, including among
other things, (i) rental rates for new leases and lease renewals; (ii)
improvements needed to prepare an apartment for a new lease or a renewal lease;
(iii) lease periods; (iv) capital expenditures; (v) broker's commissions; and
(vi) discount rates applied to future cash flows. The use of assumptions or
variables that differ from those described above could produce substantially
different results. Neither we nor the general partner of your partnership
solicited any offers or inquiries from prospective buyers of the property owned
by your partnership in connection with the preparation of the estimates of value
of the properties and the actual amounts for which the partnership's properties
or the partnership could be sold could be significantly higher or lower than any
of the estimates contained herein. The estimated going concern value of your
partnership is $0 per unit, which value is below our offer price per unit.
Therefore, we believe the offer price is fair in relation to the going concern
value.
The general partner determined going concern value based upon the
discounted present value of projected cash flows from the partnership over a
ten-year period of operation, which is a standard period for going concern
analyses for real property assets. Such discounted cash flows were based upon
year one property income from the real estate portfolio of $901,000, escalated
at 3% per annum for the ten-year projection period. Property income was reduced
by: (i) partnership administrative expenses of $30,000 per annum; and (ii) debt
service on existing debt through maturity or the end of ten years, whichever
occurs first. For debt which matures during the ten-year period, a refinancing
at a 7% interest rate was assumed. At the end of the ten-year projection period,
the property was assumed to be sold at a price based upon property income for
the immediately following year, capitalized at a capitalization rate of 11%,
less expenses of sale estimated at 3% of the property value. The net cash flow
to limited partners from the continued operation of the property and the net
proceeds of sale were then discounted at a discount rate of 40% to achieve the
going concern value of $0 per unit.
The capitalization rate used to determine the going concern value is 0.5%
greater than the capitalization rate used in the liquidation analysis. The
higher capitalization rate reflects the additional risk associated with the
calculation of going concern value. These risks include: (i) projected growth in
net operating income of 3% per annum, and (ii) the older age of the property at
the time of the projected sale. Furthermore, we were advised by Stanger that it
is common practice in the valuation of real estate to increase the
capitalization rate by at least 0.5% when estimating a value based upon
discounted future cash flows.
Your partnership's property currently has a balloon payment due in November
2002. While the going concern value was based on your partnership refinancing
its indebtedness and continuing to own its property; the alternative going
concern value of $0 is based on selling the property when the balloon payment is
due and otherwise includes the same assumptions as the going concern value
described above. For the reason set forth above, we believe the offer
consideration is fair in relation to the alternative going concern value.
There is currently no market for the Partnership Preferred Units or
Partnership Common Units.
Net Book Value
Net book value per unit is a deficit of $75,395 and therefore a comparison
with the offering price would not be meaningful in determining the fairness of
the offering price.
Stanger's Estimate of Net Asset Value, Going Concern Value and Liquidation
Value
In rendering its opinion set forth as Appendix A, Stanger did its own
independent estimate of your partnership's net asset value of $0 per unit, going
concern value of $0 per unit and liquidation value of $0 per unit. For an
explanation of how Stanger determined such values see "Stanger
Opinion -- Summary of Reviews -- Comparison of Offer Price To Liquidation Value,
Going Concern Value and Secondary Market Prices." An estimate of your
partnership's net asset value per unit is based on a hypothetical sale of your
partnership's property and the distribution to the limited partners and the
general partner of the gross
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proceeds of such sales, net of related indebtedness, together with cash,
proceeds from temporary investments, and all other assets that are believed to
have a liquidation value, after provisions in full for all of the other known
liabilities of your partnership. The net asset value does not take into account
(i) timing considerations discussed under "Fairness of the Offer -- Comparison
of Consideration to Alternative Consideration -- Estimated Liquidation
Proceeds," and (ii) costs associated with winding up of your partnership.
Therefore, the AIMCO Operating Partnership believes that the estimate of net
asset value per unit does not necessarily represent the fair market value of a
unit or the amount the limited partner reasonably could expect to receive if the
partnership's property was sold and the partnership was liquidated. For this
above reason, the AIMCO Operating Partnership considers net asset value
estimates to be less meaningful in determining the offer consideration than the
analysis described above under "Valuation of Units."
Stanger's estimates of net asset value, going concern value and liquidation
value per unit represents discounts to the offer price of $100, $100 and $100.
In light of these discounts and for all the reasons set forth above, the AIMCO
Operating Partnership believes the offer price is fair to the limited partners.
The AIMCO Operating Partnership believes that the best and most commonly used
method of determining the value of a partnership which only owns an apartment is
the capitalization of income approach set forth in "Valuation of Units."
ALLOCATION OF CONSIDERATION
We have allocated the estimated liquidation proceeds in accordance with the
liquidation provisions of your partnership agreement of limited partnership. We
believe that if your partnership was liquidated there would not be enough value
to fully discharge all known liabilities. We have, however, decided to offer you
$100 per unit. Since the allocation was made in accordance with the terms of
such partnership agreement, we believe the allocation is fair. See "Valuation of
Units."
STANGER ANALYSIS
We engaged Stanger, an independent investment banking firm, to conduct an
analysis and to render an opinion (the "Fairness Opinion") as to whether the
offer consideration for the units is fair, from a financial point of view, to
the unitholders. We selected Stanger because of its experience in providing
similar services to other parties in connection with real estate merger and sale
transactions and Stanger's experience and reputation in connection with real
estate partnerships and real estate assets. No other investment banking firm was
engaged to provide, or has provided, any report, analysis or opinion relating to
the fairness of our offer.
Stanger has advised us that, subject to the assumptions, limitations and
qualifications contained in its Fairness Opinion, the offer consideration for
the units is fair, from a financial point of view, to the unitholders. We
determined the offer consideration, and Stanger did not, and was not requested
to, make any recommendations as to the form or amount of consideration to be
paid in connection with the offer.
The full text of the Fairness Opinion, which contains a description of the
matters considered and the assumptions, limitations and qualifications made, is
set forth as Appendix A hereto and should be read in its entirety. The summary
set forth herein does not purport to be a complete description of the review
performed by Stanger in rendering the Fairness Opinion. Arriving at a fairness
opinion is a complex process not necessarily susceptible to partial analysis or
amenable to summary description.
We imposed no conditions or limitations on the scope of Stanger's
investigation or with respect to the methods and procedures to be followed in
arriving at the fairness opinion. See "-- Assumptions, Limitations and
Qualifications." We have agreed to indemnify Stanger against any losses, claims,
damages, liabilities or expenses to which Stanger may be subject, under any
applicable federal or state law, including federal and state securities laws,
arising out of Stanger's engagement to prepare and deliver the Fairness Opinion.
EXPERIENCE OF STANGER
Since its founding in 1978, Stanger and its affiliates have provided
information, research, investment banking and consulting services to clients
located throughout the United States, including major NYSE
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member firms, insurance companies and over seventy companies engaged in the
management and operation of partnerships and real estate investment trusts. The
investment banking activities of Stanger include financial advisory and fairness
opinion services, asset and securities valuations, industry and company research
and analysis, litigation support and expert witness services, and due diligence
investigations in connection with both publicly registered and privately placed
securities transactions.
Stanger, as part of its investment banking business, is regularly engaged
in the valuation of businesses and their securities in connection with mergers,
acquisitions, reorganizations and for estate, tax, corporate and other purposes.
Stanger's valuation practice principally involves partnerships, partnership
securities and the assets typically held through partnerships, such as real
estate, oil and gas reserves, cable television systems and equipment leasing
assets. Stanger was selected because of its experience and reputation in
connection with real estate partnerships, real estate assets and mergers and
acquisitions.
SUMMARY OF MATERIALS CONSIDERED
In the course of Stanger's analysis to render its opinion, Stanger: (i)
reviewed a draft of the Prospectus Supplement related to the offer in
substantially the form which will be distributed; (ii) reviewed your
partnership's audited financial statements for the years ended December 31, 1996
and 1997, and its unaudited financial statements for the period ended September
30, 1998, which your partnership's management has indicated to be the most
current available financial statements at the time; (iii) reviewed descriptive
information concerning your partnership's real estate assets (the "property")
provided by management, including location, number of units and unit mix or
square footage, age, and amenities; (iv) reviewed summary historical operating
statements for your partnership's property for 1996, 1997 and 1998; (v) reviewed
operating budgets for your partnership's property for 1998, as prepared by your
partnership; (vi) reviewed information prepared by management relating to any
debt encumbering your partnership's property; (vii) reviewed information
regarding market rental rates and conditions for similar properties in the
general market area of your partnership's property and other information
relating to acquisition criteria for similar properties; (viii) reviewed
internal financial analyses prepared by your partnership of the estimated
current net liquidation value and going concern value of your partnership; (ix)
reviewed information provided by AIMCO concerning the AIMCO Operating
Partnership, the Common OP Units and the Preferred OP Units; and (x) conducted
other studies, analysis and inquiries as Stanger deemed appropriate.
A summary of the operating budgets per property for the year ended December
31, 1998, which was supplied by your partnership to Stanger, is as follows:
FISCAL 1998 OPERATING BUDGETS
<TABLE>
<CAPTION>
SYCAMORE CREEK
--------------
<S> <C>
Total Revenues.............................................. $ 2,237,488
Operating Expenses.......................................... (1,062,243)
Replacement Reserves -- Net................................. (373,264)
Debt Service................................................ (804,492)
Capital Expenditures........................................ (24,500)
-----------
Net Cash Flow..................................... $ (27,011)
===========
</TABLE>
The above budgets at the time they were made were forward-looking
information developed by the general partner of your partnership. Therefore, the
budgets were dependent upon future events with respect to the ability of your
partnership to meet such budget. The budgets incorporated various assumptions
including, but not limited to, lease revenue (including occupancy rates),
various operating expenses, general and administrative expenses, depreciation
expenses, capital expenditures, and working capital levels. While we deemed such
budgets to be reasonable and valid at the date made, there is no assurance that
the assumed facts will be validated or that the circumstances will actually
occur. Any estimate of the future performance of a business, such as your
partnership's business, is forward-looking and based on assumptions some of
which inevitably will prove to be incorrect.
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The budget amounts provided above are figures that were not computed in
accordance with GAAP. In particular, items that are categorized as capital
expenditures for purposes of preparing the operating budget are often
re-categorized as expenses when the financial statements are audited and
presented in accordance with GAAP. Therefore, the summary operating budget
presented for fiscal 1998 should not necessarily be considered as indicative of
what the audited operating results for fiscal 1998 will be. For the year ended
December 31, 1998, the partnership expects to report revenues of $2,033,136,
operating expenses of $1,010,759 and replacement reserves and capital
expenditures of $124,605. Based on these estimates, the partnership's net cash
flow before debt service, which we believe provides a better indication of the
partnership's actual operating performance, than net cash flow, was greater than
the budgeted amounts.
In addition, Stanger discussed with management of your partnership and
AIMCO the market conditions for the property, conditions in the market for
sales/acquisitions of properties similar to that owned by your partnership,
historical, current and projected operations and performance of your
partnership's property and your partnership, the physical condition of your
partnership's property including any deferred maintenance, and other factors
influencing value of your partnership's property and your partnership. Stanger
also performed site inspections of your partnership's property, reviewed local
real estate market conditions, and discussed with property management personnel
conditions in local apartment rental markets and market conditions for sales and
acquisitions of properties similar to your partnership's property.
SUMMARY OF REVIEWS
The following is a summary of the material reviews conducted by Stanger in
connection with and in support of its Fairness Opinion. The summary of the
opinion and reviews of Stanger set forth in this Prospectus Supplement is
qualified in its entirety by reference to the full text of such opinion.
Property Evaluation. In preparing its Fairness Opinion, Stanger performed a
site inspection of your partnership's property during the third quarter of 1998.
In the course of the site visit, the physical facilities of your partnership's
property were observed, current rental and occupancy information was obtained,
current local market conditions were reviewed, similar competing properties were
identified, and local property management personnel were interviewed concerning
your partnership's property and local market conditions. Stanger also reviewed
and relied upon information provided by your partnership and AIMCO, including,
but not limited to, financial schedules of historical and current rental rates,
occupancies, income, expenses, reserve requirements, cash flow and related
financial information; property descriptive information including unit mix or
square footage; and information relating to the condition of the property,
including any deferred maintenance, capital budgets, status of ongoing or newly
planned property additions, reconfigurations, improvements and other factors
affecting the physical condition of the property improvements.
Stanger also reviewed historical operating statements for your
partnership's property for 1996, 1997, and for the nine month period ending
September 30, 1998, the operating budget for 1998, as prepared by your
partnership, and discussed with management the current and anticipated operating
results of your partnership's property.
In addition, Stanger interviewed management personnel of your partnership
and AIMCO. Such interviews included discussions of conditions in the local
market, economic and development trends affecting your partnership's property,
historical and budgeted operating revenues and expenses and occupancies and the
physical condition of your partnership's property (including any deferred
maintenance and other factors affecting the physical condition of the
improvements), projected capital expenditures and building improvements, the
terms of existing debt, encumbering your partnership's property, and
expectations of management regarding operating results of your partnership's
property.
Stanger also reviewed the acquisition criteria used by owners and investors
in the type of real estate owned by your partnership, utilizing available
published information and information derived from interviews conducted by
Stanger with various real estate owners and investors.
Review of Partnership Liquidation Analysis. Stanger reviewed the
liquidation value calculation prepared by the management of your partnership.
Stanger observed that such liquidation value was based upon the
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gross property valuation estimate prepared by management, which in turn is based
upon fiscal year 1997 property income capitalized at a capitalization rate of
10.5%. Stanger further observed that the gross property valuation was adjusted
for the following additional items to achieve the liquidation value of your
partnership: (i) cash, other assets, mortgage indebtedness and other liabilities
determined as of December 31, 1997; (ii) estimated closing costs equal to
approximately 2.5% of gross real estate value; and (iii) extraordinary capital
expenditure estimates in the amount of $1,365,920. Stanger observed that your
partnership liquidation value was negative and a minimum per unit price of $100
was used.
Review of Partnership Going Concern Analysis. Stanger reviewed the going
concern value calculation prepared by management of your partnership. Stanger
observed that such going concern value was based upon the discounted present
value of projected cash flows from the partnership over a ten-year period of
operation which is a standard period for going concern analysis for real
property assets. Such discounted cash flows were based upon year one property
income from the real estate portfolio of $901,000 escalated at 3% per annum for
the ten-year projection period. Property income was reduced by: (i) partnership
administrative expenses of $30,000 per annum; and (ii) debt service on existing
debt through maturity or the end of ten years, whichever occurs first. For debt
which matures during the ten-year period, a refinancing at a 7% interest rate
was assumed. At the end of the ten-year projection period, the properties were
assumed to be sold based upon: (i) property income for the immediately following
year capitalized at a capitalization rate of 11%; and (ii) expenses of sale
estimated at 3% of property value. Stanger observed that the proceeds of sale
were reduced by the estimated debt balance at the end of the tenth year to
provide net proceeds from the sale of your partnership's property.
The resulting cash flows for the ten-year period were discounted to present
value at a discount rate of 40%. Stanger observed that such discount rate was
based upon the portfolio real estate discount rate of 13%, adjusted for leverage
risk and illiquidity risk. Stanger observed that the resulting partnership going
concern value was negative and therefore deemed 0.
Review of Secondary Market Prices. Stanger maintains a database of
secondary market information on limited partnership units. Stanger observed for
its data that no units were reported traded in the secondary market during 1998.
Comparison of Offer Price to Liquidation Value, Going Concern Value and
Secondary Market Price. Stanger observed that the offer price of $100 per unit
is equal to management's minimum value, and reflects a 100% premium to
management's estimate of going concern value of 0. Stanger further observed that
investors may select cash, Common OP Units or Preferred OP Units in exchange for
their partnership units or they may elect to continue to hold their partnership
units. Stanger further observed that the Common OP Units will be priced at
$37.63 per unit, an amount which equals the average of the closing prices for
the common shares into which such Common OP Units are convertible for the 30
trading day period ended March 23, 1999. Furthermore, Stanger observed that the
Preferred OP Units to be issued in the transaction will be based upon the
liquidation preference of $25. Stanger noted that the Preferred OP Units are
redeemable for, at AIMCO's option, either: (i) $25 in cash per Preferred OP
Unit; (ii) common stock of AIMCO based upon a ten-day average price at the time
of the requested redemption; or (iii) commencing on the third year following the
closing of this transaction, preferred stock of AIMCO with a dividend equal to
the distribution on the Preferred OP Units. Stanger advised us that Stanger
adjusted its estimate of net asset value and liquidation value for the cost of
above market debt using a 7% interest rate. Stanger observed that the ten day
average closing price of the AIMCO common stock is $36.425, as of March 23, 1999
and therefore an investor receiving AIMCO common shares in redemption of the
Preferred OP Units would receive 0.6863 shares with a value approximating $25
for each $25 Preferred OP Unit redeemed, based upon AIMCO's common share price
as of March 23, 1999. Stanger noted that commencing in the third year, investors
redeeming Preferred OP Units may receive from AIMCO Preferred Stock with a
dividend equal to the distribution on the AIMCO Preferred OP Units. Stanger
observed that the distribution on the Preferred OP Units is set at 8% of $25 and
that the average dividend yield on AIMCO's outstanding C, D, G and H Preferred
Shares approximates 10.1% as of March 23, 1999. Stanger noted that, based upon
the cash dividend yield on the AIMCO Preferred Shares identified above as of
March 23, 1999, investors would receive Preferred Shares with a value of
approximately $19.80 for each $25 Preferred OP Unit if such redemption
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occurred after the second year following the closing of the transaction. Stanger
further observed that the above analysis does not take into consideration the
present value of the earnings on the tax deferral an investor may realize as the
result of selecting Preferred OP Units in lieu of cash in a taxable transaction.
In addition to the above analysis, Stanger prepared an independent estimate
of net asset value, going concern value and liquidation value per unit. Stanger
has advised AIMCO that Stanger's estimates of net asset value, liquidation value
and going concern value are based upon Stanger's independent estimate of
property income, a direct capitalization rate of 10%, transaction costs of 2.5%
to 5.0%, growth rates of 3% and a terminal capitalization rate of 10.5%. Stanger
has advised us that the direct capitalization rate represents Stanger's estimate
of the capitalization rate applicable to its estimate of property income and is
based upon Stanger's independent estimate of the direct capitalization rate for
such property based upon such property's age, condition and location. Stanger
further advised us that the terminal capitalization rate is the capitalization
rate utilized in Stanger's going concern value estimate which is applied to
Stanger's estimate of property income in the eleventh year to establish the
value of the property at the end of the tenth year. Stanger has advised us that
Stanger estimated the terminal capitalization rate at a 50 basis point premium
to the direct capitalization rate estimate for the property. Stanger advised us
that Stanger adjusted its estimate of net asset value and liquidation value for
the cost of above market debt using a 7% interest rate. Stanger utilized
deferred maintenance estimates derived from the Adjusters International, Inc.
reports in the calculation of net asset value, liquidation value and going
concern value. With respect to the going concern value estimate prepared by
Stanger, Stanger advised AIMCO that a ten-year projection period and a discount
rate of 40% was utilized. Such discount rate reflects the risk associated with
real estate, leverage and a limited partnership investment. The 40% discount
rate was based upon the property's estimated internal rate of return derived
from the discounted cash flow analysis, (12.5% as described above), plus a
premium reflecting the additional risk associated with mortgage debt equal to
more than 80% of property value. Stanger's estimates were based in part upon
information provided by us. Stanger relied upon the deferred maintenance
estimates, property descriptions, unit configurations, allocation among
partners, and other data provided by us. Stanger's analyses were based on
balance sheet data as of September 30, 1998, 1998. Stanger's review also
included a site visit, review of rental rates and occupancy at the properties as
well as competing properties. Stanger's estimate of net asset value, going
concern value and liquidation value per unit were $0, $0 and $0 representing
discounts to the offer price of $100. See "Fairness of the Offer -- Comparison
of Consideration to Alternative Consideration."
REVIEW OF APPRAISAL
Stanger observed that an appraisal was prepared as of January 1, 1996 by R.
A. Jackson Appraisal Co., Inc. on the property. The date of the appraisal is
August 29, 1997. The appraisal was prepared in connection with a hearing before
the Hamilton County Board of Revision. Stanger observed that the appraiser
considered the income sales comparison appraisal and cost approach in deriving
an estimate of value. The concluded value was $9,100,000. Stanger observed that
the appraiser relied primarily on the income appraisal wherein a net operating
income before real estate taxes was estimated at $1,035,000 and real estates
taxes were estimated at $178,000. The resulting estimated net operating income
was $857,000 which the appraiser capitalized at a capitalization rate of 9.5%.
Stanger further observed that the appraiser estimated replacement revenue at
$175,000 per annum ($593 per unit) in the determination.
Stanger observed that the annualized nine month net operating income from
the property before replacement reserve was approximately $1,037,000 and
$862,000 after a $175,000 replacement reserve and as such has been relatively
flat in terms of growth as compared to the 1996 estimate of net operating income
contained in the appraisal.
Stanger noted that the appraisal identified four sale comparables with
values per unit ranging from $23,000 to $28,000 and averaging approximately
$29,000. Stanger noted that the average capitalization rate of the four
comparable sales use 10.18%.
Stanger observed that the gross property value calculated by AIMCO for the
property was $8,581,000 and that such value calculation resulted in a negative
partnership value of $433,950 and that the value of the
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property would need to exceed approximately $9,020,000 before an amount in
excess of the $100 per unit value of your partnership would be exceeded. Stanger
noted that the $902,000 amount described above is .8% less than the appraisal.
Stanger advised AIMCO that Stanger considered the appraisal in connection
with preparing the Fairness Opinion.
Stanger advised us that they did not assign specific weightings to any
portions of its review and analysis.
CONCLUSIONS
Stanger concluded, based upon its analysis of the foregoing and the
assumptions, qualifications and limitations stated below, as of the date of the
Fairness Opinion, that the offer consideration to be paid for the units in
connection with the offer is fair to the unitholders from a financial point of
view. Stanger has rendered similar fairness opinions with regard to certain
other exchange offers being made by the AIMCO Operating Partnership. Stanger
rendered the opinions only as to the individual fairness of the offer
consideration in each proposed exchange offer. The Fairness Opinion does not
address the fairness of all possible acquisitions of interests in your
partnership. In addition, the Fairness Opinion will not be revised to reflect
the actual participation in the offer.
ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS
In rendering the Fairness Opinion, Stanger relied upon and assumed, without
independent verification, the accuracy and completeness of all financial
information and data, and all other reports and information contained in this
Prospectus Supplement or that were provided, made available, or otherwise
communicated to Stanger by your partnership, AIMCO, or the management of the
partnership's property. Stanger has not performed an independent appraisal,
engineering study or environmental study of the assets and liabilities of your
partnership. Stanger relied upon the representations of your partnership and
AIMCO concerning, among other things, any environmental liabilities, deferred
maintenance and estimated capital expenditure and replacement reserve
requirements, the determination and valuation of non-real estate assets and
liabilities of your partnership, the allocation of your partnership's net values
between your general partner (which is our subsidiary) and limited partners of
your partnership, the terms and conditions of any debt encumbering the
partnership's property, and the transaction costs and fees associated with a
sale of the property. Stanger also relied upon the assurance of your
partnership, AIMCO, and the management of the partnership's property that any
financial statements, budgets, pro forma statements, projections, capital
expenditure estimates, debt, value estimates and other information contained in
this Prospectus Supplement or provided or communicated to Stanger were
reasonably prepared and adjusted on bases consistent with actual historical
experience, are consistent with the terms of your partnership's agreement of
limited partnership, and reflect the best currently available estimates and good
faith judgments; that no material changes have occurred in the value of the
partnership's property or other balance sheet assets and liabilities or other
information reviewed between the date of such information provided and the date
of the Fairness Opinion; that your partnership, AIMCO, and the management of the
partnership's property are not aware of any information or facts that would
cause the information supplied to Stanger to be incomplete or misleading; that
the highest and best use of the partnership's property is as improved; and that
all calculations were made in accordance with the terms of your partnership's
agreement of limited partnership.
Stanger was not requested to, and therefore did not: (i) select the offer
consideration or the method of determining the offer consideration; (ii) make
any recommendation to your partnership or its partners with respect to whether
to accept or reject the proposed offer or whether to accept the cash, Preferred
OP Units or Common OP Units if the offer is accepted; (iii) solicit any third
party indications of interest in acquiring the assets of your partnership or all
or any part of your partnership; or (iv) express any opinion as to (a) the tax
consequences of the offer to unitholders, (b) the terms of your partnership's
agreement of limited partnership or the terms of any agreements or contracts
between your partnership or AIMCO; (c) AIMCO's or the general partner's business
decision to effect the offer, or alternatives to the offer, (d) the amount or
allocation of expenses relating to the offer between AIMCO and your partnership
or tendering unitholders;
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(e) the relative value of the cash, Preferred OP Units or Common OP Units to be
issued in connection with the offer; and (f) any adjustments made to determine
the offer consideration and the net amounts distributable to the unitholders,
including but not limited to, balance sheet adjustments to reflect your
partnership's estimate of the value of current net working capital balances,
reserve accounts, and liabilities, and adjustments to the offer consideration
for distributions made by your partnership subsequent to the date of the offer.
Stanger is not expressing any opinions as to the fairness of any terms of
the offer other than the offer consideration for the units, nor did Stanger
address the fairness of all possible acquisitions of interests in the
partnership. The opinion will not be revised to reflect the actual results of
the offer. Stanger's opinion is based on business, economic, real estate and
capital market, and other conditions as of the date of its analysis and
addresses the offer in the context of information available as of the date of
its analysis. Events occurring after such date and before the closing of the
proposed offer could affect the partnership's property or the assumptions used
in preparing the Fairness Opinion. Stanger has no obligation to update the
Fairness Opinion on the basis of subsequent events.
In connection with preparing the Fairness Opinion, Stanger was not engaged
to, and consequently did not, prepare any written or oral report or compendium
of its analysis for internal or external use beyond the report set forth in
Appendix A.
COMPENSATION AND MATERIAL RELATIONSHIPS
Stanger has been retained by AIMCO to provide fairness opinions with
respect to your partnership and other partnerships which are or will be the
subject of similar offers. Stanger will be paid a fee by AIMCO of $9,000 with
respect to your partnership. The estimated aggregate fee payable to Stanger in
connection with all affiliated partnerships is estimated at $1,510,000, plus
out-of-pocket expenses estimated at $61,000. In addition, Stanger is entitled to
reimbursement for reasonable legal, travel and out-of-pocket expenses incurred
in making the site visits and preparing the Fairness Opinion, and is entitled to
indemnification against certain liabilities, including certain liabilities under
Federal securities laws. No portion of Stanger's fee is contingent upon
consummation of the offer or the content of Stanger's opinion. Stanger was
engaged by AIMCO during 1997 to represent AIMCO in negotiations to acquire
interests in a real estate limited partnership. Such transaction was never
consummated and no fee was ever paid to Stanger in connection with such proposed
transaction. AIMCO and its affiliates may retain the services of Stanger in the
future. Any such future services could relate to this offer, some or all of the
concurrent offers, or a completely separate transaction.
YOUR PARTNERSHIP
GENERAL
Sycamore Creek Associates, L.P., is a Delaware limited partnership which
completed a private placement of units in 1984. Insignia acquired the general
partner of your partnership in October 1998. AIMCO acquired Insignia in October
1998. There are currently a total of 72 limited partners of your partnership and
a total of 45.99 units of your partnership outstanding. Your partnership is in
the business of owning and managing residential housing. Currently, your
partnership owns and manages the property described below. Your partnership has
no employees. Your partnership's principal executive offices are located at 1873
South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone
number at that address is (303) 757-8101.
YOUR PARTNERSHIP AND ITS PROPERTY
Your partnership was formed on July 13, 1984 for the purpose of owning an
apartment property located in Cincinnati, Ohio, known as "Sycamore Creek
Apartments." Your partnership's property is owned by the partnership but is
subject to a mortgage. The property was built in 1979 and consists of 295
apartment units. Your partnership's property had an average occupancy rate of
approximately 89.52%, in 1998, 89.15% in 1997 and 89.15% in 1996.
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Your partnership's property provides residents with a number of amenities
and services, such as 24-hour desk service, exercise room and/or sauna, and
party or meeting rooms. Nearly all apartment units are wired for cable
television, and many apartment units also offer one or more additional features,
such as washer/ dryer, microwave, fireplace, and patio/balcony.
Budgeted renovations for 1999 total $1,365,920 and are intended to be paid
for out of cash flow or borrowings. Renovation items include gutters and
downspouts, siding/trim/soffits/facia, exterior paint, balconies, sidewalks,
windows, and drainage.
Set forth below are the average rents for the apartments for the last five
years:
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C>
$530 $526 $513 $514 $519
</TABLE>
The apartments are being depreciated for federal income tax purposes using
the accelerated cost recovery method. Depreciation is computed principally by
the straight-line and accelerated methods over estimated lives of 3 to 40 years.
Currently, the real estate taxes on the property are $209,939 of $3,304,000
of assessed valuation with a current yearly tax rate of 6.35%. When the proposed
improvements are made it is anticipated that the yearly tax rate may increase by
approximately 6.67% of such improvements.
PROPERTY MANAGEMENT
Your partnership's property is managed by an entity which is a wholly owned
subsidiary of AIMCO. Pursuant to the management agreement between the property
manager and your partnership, the property manager operates your partnership's
property, establishes rental policies and rates and directs marketing
activities. The property manager also is responsible for maintenance, the
purchase of equipment and supplies, and the selection and engagement of all
vendors, suppliers and independent contractors.
INVESTMENT OBJECTIVES AND POLICIES; SALE OR FINANCING OF INVESTMENTS
Under your partnership's agreement of limited partnership, your partnership
is not permitted to raise new equity and reinvest cash in new properties.
Consequently, your partnership is limited in its ability to expand its
investment portfolio. Your partnership will terminate on December 31, 2008
unless earlier dissolved. Your partnership has no present intention to
liquidate, sell, finance or refinance your partnership's property within any
specified time period.
Generally, your partnership is authorized to acquire, develop, improve, own
and operate your partnership's property as an investment and for income
producing purposes. The investment portfolio of your partnership is limited to
the assets acquired with the initial equity raised through the sale of units to
the limited partners of your partnership or the assets initially contributed to
your partnership by the limited partners, as well as the debt financing obtained
by your partnership within the established borrowing restrictions.
An investment in your partnership is a finite life investment, with the
partners to receive regular cash distributions out of your partnership's
distributable cash flow, if available, and to receive cash distributions upon
liquidation of your partnership's real estate investments, if available.
In general, your general partner (which is our subsidiary) regularly
evaluates the partnership's property by considering various factors, such as the
partnership's financial position and real estate and capital markets conditions.
The general partner monitors the property's specific locale and sub-market
conditions (including stability of the surrounding neighborhood) evaluating
current trends, competition, new construction and economic changes. The general
partner oversees each asset's operating performance and continuously evaluates
the physical improvement requirements. In addition, the financing structure for
each property (including any prepayment penalties), tax implications,
availability of attractive mortgage financing to a purchaser, and the investment
climate are all considered. Any of these factors, and possibly others, could
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potentially contribute to any decision by the general partner to sell,
refinance, upgrade with capital improvements or hold a particular partnership
property. If rental market conditions improve, the level of distributions might
increase over time. It is possible that the private resale market for properties
could improve over time, making a sale of the partnership's property in a
private transaction at some point in the future a more viable option than it is
currently. After taking into account the foregoing considerations, your general
partner is not currently seeking a sale of your partnership's property primarily
because it expects the property's operating performance to remain strong in
term. In making this assessment, your general partner noted that occupancy and
rental rates at the property were 90% and $530, respectively, at December 31,
1998, compared to 92% and $494, respectively, at December 31, 1997. Although
there can be no assurance as to future performance, the general partner expects
to remain strong in the near future because of the property's location in a
desirable location in greater Cincinnati. In addition, the general partner noted
that it expects to spend approximately $1,365,920 for capital expenditures and
capital improvements at the property in 1999 to update and improve the
property's balconies, paving, windows, landscaping, drainage, and other areas.
These expenditures are expected to improve the desirability of the property to
tenants. The general partner does not believe that a sale of the property at the
present time would adequately reflect the property's future prospects. Another
significant factor considered by your general partner is the likely tax
consequences of a sale of the property for cash. Such a transaction would likely
result in tax liabilities for many limited partners. the general partner has not
received any recent indication of interest or offer to purchase the property.
CAPITAL REPLACEMENT
Your partnership has an ongoing program of capital improvements,
replacements and renovations, including roof replacements, kitchen and bath
renovations, balcony repairs (where applicable), replacement of various building
systems and other replacements and renovations in the ordinary course of
business. All capital improvement and renovation costs are expected to be paid
from operating cash flows, cash reserves, or from short-term or long-term
borrowings. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations of Your Partnership."
BORROWING POLICIES
Your partnership's agreement of limited partnership allows your partnership
to incur debt. As of December 31, 1998, your partnership had a current mortgage
note outstanding of $7,095,303, payable to Marine Midland and Bank of America,
which bears interest at a rate of 7.60%. The mortgage debt is due on November
2002. Your partnership also has a second mortgage note outstanding of $256,342,
on the same terms as the current mortgage note. Your partnership's agreement of
limited partnership also allows the general partner of your partnership to lend
funds to your partnership. As of December 31, 1998, your general partner had no
loans outstanding to your partnership.
COMPETITION
There are other residential properties within the market area of your
partnership's property. The number and quality of competitive properties in such
an area could have a material effect on the rental market for the apartments at
your partnership's property and the rents that may be charged for such
apartments. While we are a significant factor in the United States in the
apartment industry, competition for apartments is local.
LEGAL PROCEEDINGS
Your partnership is party to a variety of legal proceedings related to its
ownership of the partnership's property and management and leasing business,
respectively, arising in the ordinary course of the business, which are not
expected to have a material adverse effect on your partnership.
HISTORY OF THE PARTNERSHIP
Your partnership used the funds raised to purchase its property and it has
expended the funds so raised many years ago. Your partnership currently owns the
one property described herein, which is subject to a
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substantial mortgage. Your general partner (which is our subsidiary) has not
experienced any material adverse financial developments from January 1, 1997
through the present.
Under your partnership's agreement of limited partnership, the term of the
partnership will continue until December 31, 2008, unless sooner terminated as
provided in the agreement or by law. Limited partners could, as an alternative
to tendering their units, take a variety of possible actions, including voting
to liquidate the partnership or amending the agreement of limited partnership to
authorize limited partners to cause the partnership to merge with another entity
or engage in a "roll-up" or similar transaction.
FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER OF YOUR PARTNERSHIP
Under applicable law, your general partner (which is our subsidiary) is
accountable to your partnership as a fiduciary. Under your partnership's
agreement of limited partnership, the general partner will not incur any
liability to your partnership or any other partner for any mistakes or errors in
judgment or for any act or omission believed by it in good faith to be within
the scope of authority conferred upon it by your partnership's agreement of
limited partnership. As a result, unitholders might have a more limited right of
action in certain circumstances than they would have in the absence of such a
provision in your partnership's agreement of limited partnership. The general
partner of your partnership is majority-owned by AIMCO. See "Conflicts of
Interest."
Your partnership will, to the extent permitted by law, indemnify and save
harmless the general partner against and from any personal loss, liability
(including attorneys' fees) or damage incurred by it as the result of any act or
omission in its capacity as general partner unless such loss, liability or
damage results from gross negligence or willful misconduct of the general
partner. As part of its assumption of liabilities in the consolidation, AIMCO
will indemnify the general partner of your partnership and their affiliates for
periods prior to and following the consolidation to the extent of the indemnity
under the terms of your partnership's agreement of limited partnership and
applicable law.
Your partnership's agreement of limited partnership does not limit the
amount or type of insurance your partnership may purchase to cover the liability
of the general partners of your partnership.
DISTRIBUTIONS AND TRANSFERS OF UNITS
Distributions
From 1993 through 1998, your partnership has paid no distributions.
Transfers
The units are not listed on any national securities exchange or quoted on
the NASDAQ System, the Electronic Bulletin Board or the "pink sheets," and there
is no established public trading market for the units. Secondary sales activity
for the units has been limited and sporadic. The general partner of your
partnership monitors transfers of the units (a) because the admission of the
transferee as a substitute limited partner in your partnership require the
consent of the general partner of your partnership under your partnership's
agreement of limited partnership, and (b) in order to track compliance with safe
harbor provisions to avoid treatment as a "publicly traded partnership" for tax
purposes. However, the general partner of your partnership does not monitor or
regularly receive or maintain information regarding the prices at which
secondary sale transactions in the units have been effectuated. The general
partner of your partnership estimates, based solely on the transfer records of
your partnership (or your partnership's transfer agent), that the number of
units transferred in privately negotiated transactions or in transactions
believed to be between related parties, family members or the same beneficial
owner was as follows:
BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP
Through subsidiaries, AIMCO currently owns, in the aggregate, approximately
a 0.992% interest in your partnership, including the interest held by us, as
general partner of your partnership. Except as set forth above, neither the
AIMCO Operating Partnership, nor, to the best of its knowledge, any of its
affiliates,
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(i) beneficially own or have a right to acquire any units, (ii) have effected
any transactions in the units in the past two years, or (iii) have any contract,
arrangement, understanding or relationship with any other person with respect to
any securities of your partnership, including, but not limited to, contracts,
arrangements, understandings or relationships concerning transfer or voting
thereof, joint ventures, loan or option arrangements, puts or calls, guarantees
of loans, guarantees against loss or the giving or withholding of proxies.
COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES
The following table shows, for each of the years indicated, compensation
paid to your general partner and its affiliates on a historical basis, and on a
pro forma basis assuming that all of the units sought in our offer had been
acquired at the beginning of each period:
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
--------------------------------------------------- ---------------------------------------------------
PARTNERSHIP PROPERTY PARTNERSHIP PROPERTY
FEES AND MANAGEMENT FEES AND MANAGEMENT
YEAR EXPENSES FEES DISTRIBUTIONS TOTAL EXPENSES FEES DISTRIBUTIONS TOTAL
---- ----------- ---------- ------------- -------- ----------- ---------- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1994 $54,502 $ 98,775 $0 $153,277 $ 54,502 $98,775 $0 $153,277
1995 47,090 97,108 0 144,198 47,090 97,108 0 144,198
1996 71,297 99,666 0 170,963 71,297 99,666 0 170,963
1997 72,266 101,578 0 173,844 72,266 101,578 0 173,844
1998 39,549 105,495 0 145,044 39,549 105,495 0 145,044
</TABLE>
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SELECTED FINANCIAL INFORMATION
OF SYCAMORE CREEK ASSOCIATES, L.P.
<TABLE>
<CAPTION>
SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31,
------------------------- -------------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Cash and Cash Equivalents..... $ 64,511 $ 81,573 $ 176,610 $ 26,198 $ 47,135 $ 195,548 $ 123,421
Land & Building............... 10,817,378 10,457,015 10,749,179 10,316,901 10,222,790 10,137,293 10,198,903
Accumulated Depreciation...... (7,164,395) (6,954,010) (7,006,605) (6,796,220) (6,606,933) (6,353,048) (6,065,329)
Other Assets.................. 400,004 406,032 595,673 914,642 651,032 619,020 530,645
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total Assets.......... $ 4,117,498 $ 3,990,610 $ 4,514,857 $ 4,461,521 $ 4,314,024 $ 4,598,813 $ 4,847,640
=========== =========== =========== =========== =========== =========== ===========
Notes Payable................. $ 7,155,171 $ 7,305,472 $ 7,261,097 $ 7,422,113 $ 7,569,042 $ 7,704,803 $ 7,828,473
Other Liabilities............. 336,517 340,252 721,159 670,288 328,918 347,376 306,206
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total Liabilities..... $ 7,491,688 $ 7,645,724 $ 7,962,256 $ 8,092,401 $ 7,897,960 $ 8,052,181 $ 8,134,679
----------- ----------- ----------- ----------- ----------- ----------- -----------
Partners Deficit...... $(3,374,190) $(3,655,114) $(3,457,399) $(3,630,880) $(3,583,936) $(3,453,368) $(3,287,039)
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED
SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31,
----------------------- --------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Rental Revenue................. $1,415,048 $1,374,745 $1,877,740 $1,863,228 $1,816,137 $1,819,632 $1,837,519
Other Income................... 119,278 119,366 310,448 141,168 129,749 143,096 112,301
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total Revenue.......... $1,534,326 $1,494,111 $2,188,188 $2,004,396 $1,945,886 $1,962,728 $1,949,820
---------- ---------- ---------- ---------- ---------- ---------- ----------
Operating Expenses............. $ 593,671 $ 676,958 $ 902,610 $ 923,126 $ 882,490 $ 790,832 $ 748,845
General & Administrative....... 50,566 39,919 57,254 60,560 55,031 44,641 65,534
Depreciation................... 157,790 157,790 210,385 189,287 253,885 399,629 580,231
Interest Expense............... 496,760 502,796 666,616 679,466 691,871 703,410 692,298
Property Taxes................. 142,130 140,882 187,842 198,901 193,177 190,545 185,777
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total Expenses......... $1,441,117 $1,518,345 $2,024,707 $2,051,340 $2,076,454 $2,129,057 $2,272,685
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net Income before extraordinary
items........................ $ 93,209 $ (24,234) $ 163,481 $ (46,944) $ (130,568) $ (166,329) $ (322,865)
Extraordinary Items............ -- -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net Income (Loss).............. $ 93,209 $ (24,234) $ 163,481 $ (46,944) $ (130,568) $ (168,329) $ (322,865)
========== ========== ========== ========== ========== ========== ==========
Net Income per limited
partnership unit............. $ 2,006 $ (522) $ 3,518 $ (1,010) $ (2,810) $ (3,580) $ (6,949)
========== ========== ========== ========== ========== ========== ==========
Distributions per limited
partnership unit............. $ -- $ -- $ -- $ -- $ -- $ -- $ --
========== ========== ========== ========== ========== ========== ==========
</TABLE>
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OF YOUR PARTNERSHIP
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1998 TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1997
Net Income
Your Partnership recognized net income of $93,000 for the nine months ended
September 30, 1998, compared to a net loss of $24,000 for the nine months ended
September 30, 1997. The increase in net income of $117,000 was primarily the
result of an increase in revenues, coupled with a decrease in operating
expenses. These factors are discussed in more detail in the following
paragraphs.
Revenues
Rental and other property revenues from the Partnership Property totaled
$1,534,000 for the nine months ended September 30, 1998, compared to $1,494,000
for the nine months ended September 30, 1997, an increase of $40,000, or 2.7%.
The Partnership increased rental rates by an average of 3.9%. However, this was
offset by a decrease in occupancy of 1% to 90%. Other income was $119,000 for
both periods.
Expenses
Partnership Property operating expenses, consisting of utilities (net of
reimbursements received from tenants), contract services, turnover costs,
repairs and maintenance, advertising and marketing, and insurance totaled
$594,000 for the nine months ended September 30, 1998, compared to $677,000 for
the nine months ended September 30, 1997, a decrease of $83,000, or 12.3%. The
decrease is due to lower property maintenance expenses as the Partnership
incurred higher interior building improvements and interior painting costs
during 1997 as compared to 1998. These projects were largely the result of a
flood at the property during 1997. Partnership Property management expenses was
$79,000 for the nine months ended September 30, 1998, compared to $75,000 for
the nine months ended September 30, 1997, an increase of $4,000. This increase
is due to the increase in revenues as management fees are paid based on rental
revenues. General and administrative expenses increased $11,000 to $51,000, due
primarily to higher partnership administrative and asset management fees.
Interest Expense
Interest expense, which includes the amortization of deferred financing
costs, totaled $497,000 for the nine months ended September 30, 1998, compared
to $503,000 for the nine months ended September 30, 1997, a decrease of $6,000,
or 1.2%. The decrease is due to a lower outstanding balance on the mortgage
indebtedness due to principal payments made during the period.
As part of the ongoing business plan of your partnership, the general
partner monitors the rental market environment of your partnership's investment
property to assess the feasibility of increasing rents, maintaining or
increasing occupancy levels and protecting your partnership from increases in
expenses. As part of this plan, the general partner attempts to protect your
partnership from the burden of inflation-related increases in expenses by
increasing rents and maintaining a high overall occupancy level. However, due to
changing market conditions, which can result in the use of rental concessions
and rental reductions to offset softening market conditions, there is no
guarantee that the general partner will be able to sustain such a plan.
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1997 TO THE YEAR ENDED DECEMBER 31,
1996
Net Income
Your partnership recognized net income of $163,481 for the year ended
December 31, 1997, compared to a net loss of $46,944 for the year ended December
31, 1996. The increase in net income of $210,425 was primarily the result of a
casualty gain of $147,000 incurred due to two fires in the clubhouse and a
flood.
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There was also an increase in total revenue and a decrease in operating
expenses. These factors are discussed in more detail in the following
paragraphs.
Revenues
Rental and other property revenues from the partnership's property totaled
$2,041,188 for the year ended December 31, 1997, compared to $2,004,396 for the
year ended December 31, 1996, an increase of $36,791, or 1.8%. In the current
year, the market rent increased approximately 3% while occupancy remained flat,
resulting in approximately $15,000 of the increase. Additionally, Laundry income
increased $24,000. Cleaning and Damage Fees increased $3,000 and legal fees
increased by $3,000 which was partially offset by a decrease in Lease
cancellation fees of $9,000.
Expenses
Operating expenses consisting of utilities (net of reimbursements received
from tenants), contract services, turnover costs, repairs and maintenance,
advertising and marketing, and insurance, totaled $902,610 for the year ended
December 31, 1997, compared to $923,126 for the year ended December 31, 1996, a
decrease of $20,516 or 2.2%. The decrease is due to decreases in roof repairs in
the amount of $33,000, plumbing supplies in the amount of $15,000, contract
painting in the amount of $21,000, and floor covering expenses in the amount of
$14,000. These decreases are offset by increases in periodicals of $11,000,
special promotions of $7,000, and incentives increased of $6,000. Management
expenses totaled $101,578 for the year ended December 31, 1997 compared to
$99,666 for the year ended December 31, 1996, an increase of $1,912, or 1.9%.
General and Administrative Expenses
General and administrative expenses totaled $57,254 for the year ended
December 31, 1997 compared to $60,560 for the year ended December 31, 1996, a
decrease of $3,306 or 5.5%. The decrease is primarily due to a decrease in
contracted service fees. A decrease in contract painting was partially offset by
an increase in contract trash and contract yard.
Depreciation Expense
Depreciation expense increased approximately $21,000 due to an increase in
fixed assets of $432,000.
Interest Expense
Interest expense, which includes the amortization of deferred financing
costs, totaled $666,616 for the year ended December 31, 1997, compared to
$679,466 for the year ended December 31, 1996, a decrease of $12,850, or 1.9%.
The decrease is due to a lower outstanding balance on the mortgage indebtedness
due to principal payments made during the year.
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1996 TO THE YEAR ENDED DECEMBER 31,
1995
Net Income
Your partnership recognized a net loss of $46,944 for the year ended
December 31, 1996, compared to a net loss of $130,568 for the year ended
December 31, 1995. The decrease in net loss of $83,624, or 64.1% was primarily
the result of a decrease in depreciation expense due to 10 year property
becoming fully depreciated in 1995, coupled with an increase in total revenue,
offset by an increase in operating expenses. These factors will be discussed
further in the following paragraphs.
Revenues
Rental and other property revenues from the partnership's property totaled
$2,004,396 for the year ended December 31, 1996, compared to $1,945,886 for the
year ended December 31, 1995, an increase of $58,510, or 3.0%. The market rent
in the current year increased approximately 3% over the prior year, which was
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offset by the decrease in occupancy rates of approximately 4% over the prior
year. Additionally, the increase can be attributed to a $3,500 increase in late
charges and a $3,000 increase in laundry income.
Expenses
Operating expenses, consisting of utilities (net of reimbursements received
from tenants), contract services, turnover costs, repairs and maintenance,
advertising and marketing, and insurance, totaled $923,126 for the year ended
December 31, 1996, compared to $882,490 for the year ended December 31, 1995, an
increase of $40,636 or 4.6% Management expenses totaled $99,666 for the year
ended December 31, 1996, compared to $97,108 for the year ended December 31,
1995, an increase of $2,558, or 2.6%. The remaining increase is primarily due to
net insurance issues of $20,000 an increase in gutter repairs of $14,000, and an
increase in plumbing expenses of $6,000, which are offset partially by swimming
pool repairs of $10,000.
General and Administrative Expenses
General and administrative expenses totaled $60,560 for the year ended
December 31, 1996 compared to $55,031 for the year ended December 31, 1995, an
increase of $5,529 or 10.0%. The increase is primarily due to a general increase
in various administrative expenses.
Depreciation Expense
Depreciation expense decreased by $64,598 due to a large asset becoming
fully depreciated in the prior year.
Interest Expense
Interest expense, which includes the amortization of deferred financing
costs, totaled $679,466 for the year ended December 31, 1996, compared to
$691,871 for the year ended December 31, 1995, a decrease of $12,405, or 1.8%.
The decrease is due to a lower outstanding balance on the mortgage indebtedness
due to principal payments made during the year.
Liquidity and Capital Resources
As of September 30, 1998, your Partnership had $64,511 in cash and cash
equivalents. Your Partnership's principal demands for liquidity include normal
operating activities, payments of principal and interest on outstanding debt,
capital improvements, and distributions paid to limited partners. At September
30, 1998, the outstanding balance on the mortgage indebtedness, excluding
discount of $798,207, was $7,353,378. The mortgages require monthly payments of
approximately $65,417 until November 2002. The notes are collateralized by
pledge of land and buildings and have a stated interest rate of 7.6%. Cash used
in investing activities consisted of capital improvements and deposits to escrow
accounts maintained by the mortgage lender. Cash used in financing activities
consisted of payments of principal made on the mortgages encumbering the
Partnership's properties.
There are no commitments for material capital expenditures as of September
1998. The sufficiency of existing liquid assets to meet future liquidity and
capital expenditure requirements is directly related to the level of capital
expenditures required at the property to adequately maintain the physical assets
and meet other operating needs of the partnership. Such assets are currently
thought to be sufficient for any near-term needs of the partnership. Management
believes that your partnership has adequate sources of cash to finance its
operations, both on a short-term and long-term basis. Budgeted renovations for
1999 total $1,365,920 and are intended to be paid for out of cash flow or
borrowings. Renovation items include gutters and downspouts,
siding/trim/soffits/facia, exterior paint, balconies, sidewalks, windows and
drainage.
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THE OFFER
TERMS OF THE OFFER; EXPIRATION DATE
We are offering to acquire up to 25% of the outstanding 45.99 units of your
partnership (up to 11.50 units) for consideration per unit of (i) 4.00 Preferred
OP Units, (ii) 2.75 Common OP Units, or (iii) $100 in cash. If you tender units
pursuant to our offer, you may choose to receive any of such forms of
consideration for your units or any combination of such forms of consideration.
The purchase price per unit will automatically be reduced by the aggregate
amount of distributions per unit, if any, made by your partnership to you on or
after the commencement of our offer and prior to the date on which we acquire
your units pursuant to our offer.
Upon the terms and subject to the conditions of our offer set forth herein,
the AIMCO Operating Partnership will accept (and thereby purchase) units that
are validly tendered prior to the expiration of the offer and not withdrawn in
accordance with the procedures set forth in "-- Withdrawal Rights." Our offer
will expire at 5:00 p.m., New York City time, on June 4, 1999, unless the AIMCO
Operating Partnership in its sole discretion, extends the offer. See
"-- Extension of Tender Period; Termination; Amendment" for a description of the
AIMCO Operating Partnership's right to extend the period of time during which
the offer is open and to amend or terminate the offer.
If, prior to the expiration of the offer, the AIMCO Operating Partnership
increases the offer consideration, everyone whose units are accepted in the
offer will receive the increased consideration, regardless of whether their
units were tendered before or after the increase in the offer consideration.
The AIMCO Operating Partnership will, upon the terms and subject to the
conditions of the offer, accept for payment and pay for all units validly
tendered and not withdrawn prior to the expiration of our offer (subject to
proration as described below), although you will be entitled to retain any
distributions you may have received after such date and prior to our
commencement of this offer.
Our offer is conditioned on the satisfaction of certain conditions. Our
offer is not conditioned upon any minimum amount of units being tendered. See
"-- Conditions of the Offer," which sets forth in full the conditions of our
offer. The AIMCO Operating Partnership reserves the right (but is not
obligated), in its sole discretion, to waive any or all of those conditions. If,
on or prior to the expiration of the offer, any or all of the conditions have
not been satisfied or waived, the AIMCO Operating Partnership reserves the right
to (i) decline to purchase any of the units tendered, terminate the offer and
return all tendered units, (ii) waive all the unsatisfied conditions and
purchase all units validly tendered, (iii) extend the offer and, subject to the
right of unitholders to withdraw units until the expiration of the offer, retain
the units that have been tendered during the period or periods for which the
offer is extended, and (iv) amend the offer.
For administrative purposes, the transfer of units tendered pursuant to our
offer will be deemed to take effect as of January 1, 1999 (subject to proration
as described below).
This offer is being mailed to the persons shown by your partnership's
records to have been limited partners or, in the case of units owned of record
by IRAs and qualified plans, beneficial owners of units, as of March 26, 1999.
ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS
Upon the terms and subject to the conditions of the offer, the AIMCO
Operating Partnership will purchase by accepting for payment and will pay for
all units (subject to proration as described below) which are validly tendered
and not withdrawn prior to the expiration of the offer as promptly as
practicable following the expiration of the offer. A beneficial owner of units
whose units are owned of record by an individual retirement account or other
qualified plan will not receive direct payment of the offer consideration.
Instead, payment will be made to the custodian of such account or plan. In all
cases, payment for units purchased pursuant to the offer will be made only after
timely receipt by the Information Agent of a properly completed and duly
executed Letter of Transmittal and any other documents required by the Letter of
Transmittal. The
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offer consideration shall be reduced by any interim distributions made by your
partnership between the commencement and the expiration of the offer. See
"-- Procedure for Tendering Units." UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID
ON THE OFFER PRICE BY REASON OF ANY DELAY IN MAKING SUCH PAYMENT.
For purposes of the offer, the AIMCO Operating Partnership will be deemed
to have accepted for payment pursuant to the offer, and thereby purchased,
validly tendered units if, as and when the AIMCO Operating Partnership gives
verbal or written notice to the Information Agent of its acceptance of those
units for payment pursuant to the offer. Payment for units accepted for payment
pursuant to the offer will be made through the Information Agent, which will act
as agent for tendering unitholders for the purpose of receiving cash payments
from the AIMCO Operating Partnership and transmitting cash payments to tendering
unitholders. OP Units will be issued directly by the AIMCO Operating Partnership
to those unitholders who elect to receive OP Units pursuant to the offer.
If any tendered units are not accepted for payment for any reason, the
Letter of Transmittal with respect to such units not purchased may be destroyed
by the AIMCO Operating Partnership or its agent. If for any reason, acceptance
for payment of, or payment for, any units tendered pursuant to the offer is
delayed or the AIMCO Operating Partnership is unable to accept for payment,
purchase or pay for units tendered pursuant to the offer, then, without
prejudice to the AIMCO Operating Partnership's rights under "-- Conditions of
the Offer," the Information Agent may, nevertheless, on behalf of the AIMCO
Operating Partnership retain tendered units. However, any tendered units may be
withdrawn at any time prior to our accepting them for payment. The AIMCO
Operating Partnership has an obligation under Rule 14e-1(c) under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), to pay the offer
consideration in respect of units tendered or return those units promptly after
termination or withdrawal of the offer.
The AIMCO Operating Partnership reserves the right to transfer or assign,
in whole or in part, to one or more of its affiliates, the right to purchase
units tendered pursuant to the offer, but no such transfer or assignment will
relieve the AIMCO Operating Partnership of its obligations under the offer or
prejudice your right to receive payment for units validly tendered and accepted
for payment pursuant to the offer.
PROCEDURE FOR TENDERING UNITS
Valid Tender
To validly tender units pursuant to the offer, a properly completed and
duly executed Letter of Transmittal and any other documents required by such
Letter of Transmittal must be received by the Information Agent, at its address
set forth on the back cover of this Prospectus Supplement, on or prior to the
expiration of the offer. You may tender all or any portion of your units.
Signature Requirements
IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER OF THE
UNITS AND PAYMENT IS TO BE MADE DIRECTLY TO THAT HOLDER, THEN NO SIGNATURE
GUARANTEE IS REQUIRED ON THE LETTER OF TRANSMITTAL. Similarly, if the units are
tendered for the account of a member firm of a registered national securities
exchange, a member of the National Association of Securities Dealers, Inc. or a
commercial bank, savings bank, credit union, savings and loan association or
trust company having an office, branch or agency in the United States (each an
"Eligible Institution"), no signature guarantee is required on the Letter of
Transmittal. However, in all other cases, all signatures on the Letter of
Transmittal must be guaranteed by an Eligible Institution.
In order to participate in the offer, you must validly tender and not
withdraw your units prior to the expiration of the offer.
THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED
DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING HOLDER OF UNITS, AND
DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION
AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS
RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY
DELIVERY.
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<PAGE> 236
Appointment as Proxy
By executing the Letter of Transmittal, you will irrevocably appoint the
AIMCO Operating Partnership and its designees as your proxies (in the manner set
forth in the Letter of Transmittal), each with full power of substitution, to
the fullest extent of your rights with respect to your units tendered and
accepted for payment by the AIMCO Operating Partnership. Each such proxy shall
be considered coupled with an interest in the tendered units. Such appointment
will be effective when, and only to the extent that, the AIMCO Operating
Partnership accepts the tendered units for payment. Upon such acceptance for
payment, all prior proxies given by you with respect to such units will, without
further action, be revoked, and no subsequent proxies may be given (and if given
will not be effective). The AIMCO Operating Partnership and the designees of the
AIMCO Operating Partnership will, as to those units, be empowered to exercise
all of your voting and other rights as they, in their sole discretion, may deem
proper at any meeting of unitholders, by written consent or otherwise. The AIMCO
Operating Partnership reserves the right to require that, in order for units to
be deemed validly tendered, immediately upon the AIMCO Operating Partnership's
acceptance for payment for the units, the AIMCO Operating Partnership must be
able to exercise full voting rights with respect to the units, including voting
at any meeting of unitholders then scheduled or acting by written consent
without a meeting. By executing the Letter of Transmittal, you agree to execute
all such documents and take such other actions as shall be reasonably required
to enable the units tendered to be voted in accordance with the directions of
the AIMCO Operating Partnership. The proxy and power of attorney granted to the
AIMCO Operating Partnership upon your execution of the Letter of Transmittal
will remain effective and be irrevocable for a period of ten years following the
termination of the offer.
Power of Attorney
By executing a Letter of Transmittal, you also irrevocably constitute and
appoint the AIMCO Operating Partnership and its managers and designees as your
attorneys-in-fact, each with full power of substitution, to the full extent of
your rights with respect to the units tendered by you and accepted for payment
by the AIMCO Operating Partnership. Such appointment will be effective when, and
only to the extent that, the AIMCO Operating Partnership pays for your units.
You agree not to exercise any rights pertaining to the tendered units without
the prior consent of the AIMCO Operating Partnership. Upon such payment, all
prior powers of attorney granted by you with respect to such units will, without
further action, be revoked, and no subsequent powers of attorney may be granted
(and if granted will not be effective). Pursuant to such appointment as
attorneys-in-fact, the AIMCO Operating Partnership and its managers and
designees each will have the power, among other things, (i) to transfer
ownership of such units on the partnership books maintained by your general
partner (which is our subsidiary) (and execute and deliver any accompanying
evidences of transfer and authenticity any of them may deem necessary or
appropriate in connection therewith), (ii) upon receipt by the Information Agent
of the offer consideration, to become a substituted limited partner, to receive
any and all distributions made by your partnership on or after the date on which
the AIMCO Operating Partnership acquires such units, and to receive all benefits
and otherwise exercise all rights of beneficial ownership of such units in
accordance with the terms of our offer, (iii) to execute and deliver to the
general partner of your partnership a change of address form instructing the
general partner to send any and all future distributions to which the AIMCO
Operating Partnership is entitled pursuant to the terms of the offer in respect
of tendered units to the address specified in such form, and (iv) to endorse any
check payable to you or upon your order representing a distribution to which the
AIMCO Operating Partnership is entitled pursuant to the terms of our offer, in
each case, in your name and on your behalf.
Assignment of Interest in Future Distributions and All Other Rights, Etc.
If you tender units, you will agree to irrevocably sell, assign, transfer,
convey and deliver to, or upon the order of, the AIMCO Operating Partnership,
all of your right, title and interest in and to such units tendered that are
accepted for payment pursuant to the offer, including, without limitation, (i)
all of your interest in the capital of your partnership, and interest in all
profits, losses and distributions of any kind to which you shall at any time be
entitled in respect of the units; (ii) all other payments, if any, due or to
become due to you in respect of the units, under or arising out of your
partnership's agreement of limited partnership, whether as
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contractual obligations, damages, insurance proceeds, condemnation awards or
otherwise; (iii) all of your claims, rights, powers, privileges, authority,
options, security interests, liens and remedies, if any, under or arising out of
your partnership's agreement of limited partnership or your ownership of the
units, including, without limitation, all voting rights, rights of first offer,
first refusal or similar rights, and rights to be substituted as a limited
partner of your partnership; and (iv) all of your present and future claims, if
any, against your partnership or your partners under or arising out of your
partnership's agreement of limited partnership for monies loaned or advanced,
for services rendered, for the management of your partnership or otherwise.
Election of Consideration
You may elect to receive Preferred OP Units, Common OP Units or cash
pursuant to our offer, by so indicating in the appropriate space on the Letter
of Transmittal. In the event that you tender units but do not indicate on the
Letter of Transmittal which type of consideration you want, the AIMCO Operating
Partnership will issue Preferred OP Units to you.
Determination of Validity; Rejection of Units; Waiver of Defects; No Obligation
to Give Notice of Defects
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance for payment of any tender of units pursuant to the offer
will be determined by the AIMCO Operating Partnership, in its sole discretion,
which determination shall be final and binding on all parties. The AIMCO
Operating Partnership reserves the absolute right to reject any or all tenders
of any particular unit determined by it not to be in proper form or if the
acceptance of or payment for that unit may, in the opinion of the AIMCO
Operating Partnership's counsel, be unlawful. The AIMCO Operating Partnership
also reserves the absolute right to waive or amend any of the conditions of the
offer that it is legally permitted to waive as to the tender of any particular
unit and to waive any defect or irregularity in any tender with respect to any
particular unit. The AIMCO Operating Partnership's interpretation of the terms
and conditions of the offer (including the Letters of Transmittal) will be final
and binding on all parties. No tender of units will be deemed to have been
validly made unless and until all defects and irregularities have been cured or
waived. Neither the AIMCO Operating Partnership, the Information Agent nor any
other person will be under any duty to give notification of any defects or
irregularities in the tender of any units or will incur any liability for
failure to give any such notification.
Backup Federal Income Tax Withholding
To prevent the possible application of back-up Federal income tax
withholding of 31% with respect to payment of the offer consideration, you may
have to provide the AIMCO Operating Partnership with your correct taxpayer
identification number. See the instructions to the Letter of Transmittal.
FIRPTA Withholding
To prevent the withholding of Federal income tax in an amount equal to 10%
of the amount realized pursuant to the offer, you must certify under penalty of
perjury that you are not a foreign person. See the instructions to the Letter of
Transmittal and "Federal Income Tax Consequences."
Transfer Taxes
The amount of any transfer taxes (whether imposed on the registered holder
of units or any person) payable on account of the transfer to such person will
be deducted from the purchase price unless satisfactory evidence of the such
taxes or exemption therefrom is submitted.
Binding Agreement
If you tender units pursuant to any of the procedures described above, the
acceptance for payment of such units will constitute a binding agreement between
you and the AIMCO Operating Partnership on the terms set forth in this
Prospectus Supplement.
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WITHDRAWAL RIGHTS
Tenders of units pursuant to the offer may be withdrawn at any time prior
to our acceptance of such units for payment.
For withdrawal to be effective, a written notice of withdrawal must be
timely received by the Information Agent at its address set forth on the back
cover of this Prospectus Supplement. Any such notice of withdrawal must specify
the name of the person who tendered, the number of units to be withdrawn and the
name of the registered holder of such units, if different from the person who
tendered. In addition, the notice of withdrawal must be signed by the person(s)
who signed the Letter of Transmittal in the same manner as the Letter of
Transmittal was signed.
If purchase of, or payment for, units is delayed for any reason or if the
AIMCO Operating Partnership is unable to purchase or pay for units for any
reason, then, without prejudice to the AIMCO Operating Partnership's rights
under the offer, tendered units may be retained by the Information Agent and may
not be withdrawn, except to the extent that participants are entitled to
withdrawal rights as set forth herein; subject, however, to the AIMCO Operating
Partnership's obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to
pay the offer consideration in respect of units tendered or return those units
promptly after termination or withdrawal of the offer.
Any units properly withdrawn will thereafter be deemed not to have been
validly tendered for purposes of the offer.
All questions as to the validity and form (including time of receipt) of
notices of withdrawal will be determined by the AIMCO Operating Partnership, in
its sole discretion, which determination shall be final and binding on all
parties. Neither the AIMCO Operating Partnership, the Information Agent nor any
other person will be under any duty to give notification of any defects or
irregularities in any notice of withdrawal or incur any liability for failure to
give any such notification.
EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT
The AIMCO Operating Partnership expressly reserves the right, in its sole
discretion, at any time and from time to time, (i) to extend the period of time
during which the offer is open and thereby delay acceptance for payment of, and
for, any units, (ii) to terminate the offer and not accept for payment any units
not theretofore accepted for payment or paid for if any of the conditions to the
offer are not satisfied or if any event occurs that might reasonably be expected
to result in a failure to satisfy such conditions, (iii) upon the occurrence of
any of the conditions specified in "-- Conditions of the Offer," to delay the
acceptance for payment of, or for, any units not already accepted for payment or
paid for and (iv) to amend the offer in any respect (including, without
limitation, increasing or decreasing the number of Preferred OP Units or Common
OP Units, or the amount of cash offered, eliminating any of the alternative
types of consideration being offered, or increasing or decreasing the percentage
of outstanding units being sought). Notice of any such extension, termination or
amendment will promptly be disseminated in a manner reasonably designed to
inform unitholders of such change. In the case of an extension of the offer, the
extension will be followed by a press release or public announcement which will
be issued no later than 7:00 a.m., Denver, Colorado time, on the next business
day after the scheduled expiration date of the offer, in accordance with Rule
14e-1(d) under the Exchange Act.
The offer may be extended or delayed indefinitely and no payment will be
made in respect of tendered units until the expiration of the offer and the
acceptance of units for payment. If the AIMCO Operating Partnership extends the
offer, or if the AIMCO Operating Partnership (whether before or after its
acceptance for payment of units) is delayed in its payment for units or is
unable to pay for units pursuant to the offer for any reason, then, without
prejudice to the AIMCO Operating Partnership's rights under the offer, the
Information Agent may retain tendered units and those units may not be withdrawn
except to the extent participants are entitled to withdrawal rights as described
in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating
Partnership's obligation, pursuant to Rule 14e-1(c), under the Exchange Act, to
pay the
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offer consideration in respect of units tendered or return those units promptly
after termination or withdrawal of the offer.
If the AIMCO Operating Partnership makes a material change in the terms of
the offer, or if it waives a material condition to the offer, the AIMCO
Operating Partnership will extend the offer and disseminate additional tender
offer materials to the extent required by Rule 14e-1 under the Exchange Act. The
minimum period during which the offer must remain open following any material
change in the terms of the offer, other than a change in price or a change in
percentage of securities sought or a change in any dealer's soliciting fee, will
depend upon the facts and circumstances, including the materiality of the
change. With respect to a change in price or, subject to certain limitations, a
change in the percentage of securities sought or a change in any dealer's
soliciting fee, a minimum of ten business days from the date of such change is
generally required to allow for adequate dissemination to participants.
Accordingly, if prior to the expiration of the offer, the AIMCO Operating
Partnership increases (other than increases of not more than two percent of the
outstanding units) or decreases the number of units being sought, or increases
or decreases the consideration offered pursuant to the offer, and if the offer
is scheduled to expire at any time earlier than the tenth business day from the
date that notice of such increase or decrease is first published, sent or given
to unitholders, the offer will be extended at least until the expiration of such
ten business days. As used herein, "business day" means any day other than a
Saturday, Sunday or a Federal holiday, and consists of the time period from
12:01 a.m. through 12:00 midnight, Eastern time.
PRORATION
If the number of units properly tendered and not withdrawn prior to the
expiration of the offer does not exceed 25% of the outstanding units, the AIMCO
Operating Partnership, upon the terms and subject to the conditions of the
offer, will purchase all such units so tendered and not withdrawn.
If the number of units properly tendered and not withdrawn prior to the
expiration of the offer exceeds 25% of the outstanding units, the AIMCO
Operating Partnership, upon the terms and subject to the conditions of the
offer, will accept for purchase all units properly tendered and not withdrawn
prior to the expiration of the offer on a pro rata basis.
Following the expiration of the offer, the AIMCO Operating Partnership may
renew the offer one or more times on the same terms as described in this
Prospectus Supplement. If the number of units properly tendered and not
withdrawn prior to the expiration of any such renewal (together with units
previously purchased in the offer) is 25% or less, the AIMCO Operating
Partnership will purchase such units so tendered and not withdrawn. If the
number of units in your partnership properly tendered and not withdrawn prior to
the expiration of any such renewal (together with any units previously purchased
in this offer) is greater than 25%, the AIMCO Operating Partnership will
purchase units in the order of priority described in the preceding paragraph.
In the event that proration of tendered units is required, the AIMCO
Operating Partnership will determine the final proration factor as promptly as
practicable after the expiration of the offer or any renewal of the offer.
FRACTIONAL OP UNITS
We will issue fractional Common OP Units or Preferred OP Units, if
necessary.
FUTURE PLANS OF THE AIMCO OPERATING PARTNERSHIP
As described above under "Background and Reasons for the Offer," the AIMCO
Operating Partnership owns the general partner of your partnership and thereby
controls the management of your partnership. In addition, AIMCO owns the company
that manages your partnership's property. The AIMCO Operating Partnership
currently intends that, upon consummation of the offer, your partnership will
continue its business and operations substantially as they are currently being
conducted. The offer is not expected to have any effect on your partnership's
financial condition or results of operations.
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After the completion or termination of the offer, the AIMCO Operating
Partnership and its affiliates may acquire additional units or sell units.
However, the AIMCO Operating Partnership and its affiliates will not acquire any
additional units for a period of at least one year after expiration of the
offer. Any acquisition may be made through private purchases, market purchases
or transactions effected on a so-called partnership trading board, through one
or more future tender or exchange offers, by merger, consolidation or by any
other means deemed advisable. Any acquisition may be at a price higher or lower
than the price to be paid for the units purchased pursuant to this offer, and
may be for cash, limited partnership interests in the AIMCO Operating
Partnership or other consideration. The AIMCO Operating Partnership also may
consider selling some or all of the units it acquires pursuant to the offer to
persons not yet determined, which may include affiliates of the AIMCO Operating
Partnership. The AIMCO Operating Partnership may also buy your partnership's
property, although it has no present intention to do so. There can be no
assurance, however, that the AIMCO Operating Partnership will initiate or
complete, or will cause your partnership to initiate or complete, any subsequent
transaction during any specific time period following the expiration of the
offer or at all.
We currently intend that, upon consummation of the offer, your partnership
will continue its business and operations substantially as they are currently
being conducted. We do not have any present plans or proposals which relate to
or would result in any material changes in your partnership's structure or
business such as a merger, reorganization or liquidation. We have no present
intention to cause your partnership to sell any of its properties or to prepay
current mortgages within any specified time period.
VOTING BY THE AIMCO OPERATING PARTNERSHIP
If the AIMCO Operating Partnership acquires a substantial number of units
pursuant to the offer, the AIMCO Operating Partnership may be in a position to
influence voting decisions with respect to your partnership. Under your
partnership's agreement of limited partnership, holders of outstanding units are
entitled to take action with respect to a variety of matters, including
dissolution and most types of amendments to your partnership's agreement of
limited partnership. See "Comparison of Your Units and AIMCO OP Units -- Voting
Rights."
DISSENTERS' RIGHTS
Neither your partnership's agreement of limited partnership nor applicable
law provides any right for you to have your units appraised or redeemed in
connection with or as a result of the offer. In addition, we are not extending
appraisal rights in connection with the offer. You have the opportunity to make
your own decision on whether to tender your units in the offer.
No provisions have been made with regard to the offer to allow you or other
limited partners to inspect the books and records of your partnership or to
obtain counsel or appraisal services at our expense or at the expense of your
partnership. However, as described under "Comparison of Your Partnership and the
AIMCO Operating Partnership -- Review of Investor Lists," you have the right
under your partnership's agreement of limited partnership to obtain a list of
the limited partners.
CONDITIONS OF THE OFFER
Notwithstanding any other provisions of the offer, the AIMCO Operating
Partnership shall not be required to accept for payment and pay for any units
tendered pursuant to the offer, may postpone the purchase of, and payment for,
units tendered, and may terminate or amend the offer if at any time from or
after the date of this Prospectus Supplement and at or before the expiration
date of the offer, including any extension thereof, any of the following shall
occur:
(a) any change (or any condition, event or development involving a
prospective change) shall have occurred or been threatened in the business,
properties, assets, liabilities, indebtedness, capitalization, condition
(financial or otherwise), operations, licenses or franchises, management
contract, or results of operations or prospects of your partnership or
local markets in which your partnership owns or operates its property,
including any fire, flood, natural disaster, casualty loss, or act of God
that, in the reasonable
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judgment of the AIMCO Operating Partnership, is or may be materially
adverse to your partnership or the value of your units to the AIMCO
Operating Partnership, or the AIMCO Operating Partnership shall have become
aware of any facts relating to your partnership, its indebtedness or its
operations which, in the reasonable judgment of the AIMCO Operating
Partnership, has or may have material significance with respect to the
value of your partnership or the value of your units to the AIMCO Operating
Partnership; or
(b) there shall have occurred (i) any general suspension of trading in,
or limitation on prices for, securities on any national securities exchange
or the over-the-counter market in the United States, (ii) a decline in the
closing share price of AIMCO's Class A Common Stock of more than 7.5% per
share, from the date hereof, (iii) any extraordinary or material adverse
change in the financial, real estate or money markets or major equity
security indices in the United States such that there shall have occurred
at least a 7.5% increase in LIBOR or at least a 7.5% decrease in the S&P
500 Index, the Morgan Stanley REIT Index, or the price of the 10-year
Treasury Bond or the price of the 30-year Treasury Bond, in each case from
the date hereof, (iv) any material adverse change in the commercial
mortgage financing markets, (v) a declaration of a banking moratorium or
any suspension of payments in respect of banks in the United States, (vi) a
commencement of a war, armed hostilities or other national or international
calamity directly or indirectly involving the United States, (vii) any
limitation (whether or not mandatory) by any governmental authority on, or
any other event which, in the reasonable judgment of the AIMCO Operating
Partnership, might affect the extension of credit by banks or other lending
institutions, or (viii) in the case of any of the foregoing existing at the
time of the commencement of the offer, in the reasonable judgment of the
AIMCO Operating Partnership, a material acceleration or worsening thereof
(any changes to the offer resulting from the conditions set forth in this
paragraph will most likely involve a change in the amount or terms of the
consideration offered or the termination of the offer); or
(c) there shall have been threatened, instituted or pending any action,
proceeding, application or counterclaim by any Federal, state, local or
foreign government, governmental authority or governmental agency, or by
any other person, before any governmental authority, court or regulatory or
administrative agency, authority or tribunal, which (i) challenges or seeks
to challenge the acquisition by the AIMCO Operating Partnership of the
units, restrains, prohibits or delays the making or consummation of the
offer, prohibits the performance of any of the contracts or other
arrangements entered into by the AIMCO Operating Partnership (or any
affiliates of the AIMCO Operating Partnership) seeks to obtain any material
amount of damages as a result of the transactions contemplated by the
offer, (ii) seeks to make the purchase of, or payment for, some or all of
the units pursuant to the offer illegal or results in a delay in the
ability of the AIMCO Operating Partnership to accept for payment or pay for
some or all of the units, (iii) seeks to prohibit or limit the ownership or
operation by AIMCO or any of its affiliates of the entity serving as your
general partner (which is our subsidiary) or to remove such entity as the
general partner of your partnership, or seeks to impose any material
limitation on the ability of the AIMCO Operating Partnership or any of its
affiliates to conduct your partnership's business or own such assets, (iv)
seeks to impose material limitations on the ability of the AIMCO Operating
Partnership or any of its affiliates to acquire or hold or to exercise full
rights of ownership of the units including, but not limited to, the right
to vote the units purchased by it on all matters properly presented to
unitholders or (v) might result, in the sole judgment of the AIMCO
Operating Partnership, in a diminution in the value of your partnership or
a limitation of the benefits expected to be derived by the AIMCO Operating
Partnership as a result of the transactions contemplated by the offer or
the value of units to the AIMCO Operating Partnership; or
(d) there shall be any action taken, or any statute, rule, regulation,
order or injunction shall be sought, proposed, enacted, promulgated,
entered, enforced or deemed applicable to the offer, the AIMCO Operating
Partnership, its general partner or any of its affiliates or any other
action shall have been taken, proposed or threatened, by any government,
governmental authority or court, that, in the reasonable judgment of the
AIMCO Operating Partnership, might, directly or indirectly, result in any
of the consequences referred to in clauses (i) through (v) of paragraph (c)
above; or
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(e) your partnership shall have (i) changed, or authorized a change of,
its units or your partnership's capitalization, (ii) issued, distributed,
sold or pledged, or authorized, proposed or announced the issuance,
distribution, sale or pledge of (A) any equity interests (including,
without limitation, units), or securities convertible into any such equity
interests or any rights, warrants or options to acquire any such equity
interests or convertible securities, or (B) any other securities in respect
of, in lieu of, or in substitution for units outstanding on the date
hereof, (iii) purchased or otherwise acquired, or proposed or offered to
purchase or otherwise acquire, any outstanding units or other securities,
(iv) declared or paid any dividend or distribution on any units or issued,
authorized, recommended or proposed the issuance of any other distribution
in respect of the units, whether payable in cash, securities or other
property, (v) authorized, recommended, proposed or announced an agreement,
or intention to enter into an agreement, with respect to any merger,
consolidation, liquidation or business combination, any acquisition or
disposition of a material amount of assets or securities, or any release or
relinquishment of any material contract rights, or any comparable event,
not in the ordinary course of business, (vi) taken any action to implement
such a transaction previously authorized, recommended, proposed or publicly
announced, (vii) issued, or announced its intention to issue, any debt
securities, or securities convertible into, or rights, warrants or options
to acquire, any debt securities, or incurred, or announced its intention to
incur, any debt other than in the ordinary course of business and
consistent with past practice, (viii) authorized, recommended or proposed,
or entered into, any transaction which, in the reasonable judgment of the
AIMCO Operating Partnership, has or could have an adverse affect on the
value of your partnership or the units, (ix) proposed, adopted or
authorized any amendment of its organizational documents, (x) agreed in
writing or otherwise to take any of the foregoing actions, or (xi) been
notified that any debt of your partnership or any of its subsidiaries
secured by any of its or their assets is in default or has been accelerated
(any changes to the offer resulting from the conditions set forth in this
paragraph will most likely involve a change in the amount or terms of the
consideration offered or the termination of the offer); or
(f) a tender or exchange offer for any units shall have been commenced
or publicly proposed to be made by another person or "group" (as defined in
Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall have
been publicly disclosed or the AIMCO Operating Partnership shall have
otherwise learned that (i) any person or group shall have acquired or
proposed or be attempting to acquire beneficial ownership of more than four
percent of the units, or shall have been granted any option, warrant or
right, conditional or otherwise, to acquire beneficial ownership of more
than four percent of the units, or (ii) any person or group shall have
entered into a definitive agreement or an agreement in principle or made a
proposal with respect to a merger, consolidation, purchase or lease of
assets, debt refinancing or other business combination with or involving
your partnership; or
(g) with respect to the cash portion of the offer consideration only,
the AIMCO Operating Partnership shall not have adequate cash or financing
commitments available to pay the cash portion of the offer consideration;
or
(h) the offer to purchase may have an adverse effect on AIMCO's status
as a REIT.
The foregoing conditions are for the sole benefit of the AIMCO Operating
Partnership and may be asserted by the AIMCO Operating Partnership regardless of
the circumstances giving rise to such conditions or may be waived by the AIMCO
Operating Partnership in whole or in part at any time and from time to time in
its reasonable discretion. The failure by the AIMCO Operating Partnership at any
time to exercise any of the foregoing rights shall not be deemed a waiver of any
such right, the waiver of any such right with respect to any particular facts or
circumstances shall not be deemed a waiver with respect to any other facts or
circumstances and each right shall be deemed a continuing right which may be
asserted at any time and from time to time.
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EFFECTS OF THE OFFER
Future Control by AIMCO
Because the general partner of your partnership is a subsidiary of AIMCO,
AIMCO has control over the management of your partnership. If the AIMCO
Operating Partnership acquires units in the offer, AIMCO will increase its
ability to influence voting decisions with respect to your partnership. However,
we will not be able to control voting decisions unless we acquire more units in
another transaction, which cannot take place for at least one year after
expiration of this offer. Furthermore, in the event that the AIMCO Operating
Partnership acquires a substantial number of units pursuant to the offer,
removal of the general partner of your partnership (which general partner is
controlled by AIMCO) without AIMCO's consent may become more difficult or
impossible. AIMCO also controls the company that manages your partnership's
property. In the event that the AIMCO Operating Partnership acquires a
substantial number of units pursuant to the offer, removal of the property
manager may become more difficult or impossible.
Effect on Trading Market
If a substantial number of units are purchased pursuant to the offer, the
result will be a reduction in the number of limited partners in your
partnership. In the case of certain kinds of equity securities, a reduction in
the number of securityholders might be expected to result in a reduction in the
liquidity and volume of activity in the trading market for the security. In this
case, however, there is no established public trading market for the units and,
therefore, the AIMCO Operating Partnership does not believe a reduction in the
number of limited partners will materially further restrict your ability to find
purchasers for your units through secondary market transactions.
Distributions to the AIMCO Operating Partnership
As a result of the offer, the AIMCO Operating Partnership, in its capacity
as a limited partner of your partnership, will participate in any subsequent
distributions to limited partners to the extent of its interest in your
partnership, including the units purchased pursuant to this offer.
Partnership Business
This offer will not affect the operation of your partnership's property.
The AIMCO Operating Partnership will continue to control the general partner of
your partnership and the property manager will remain the same. Consummation of
the offer will not affect your partnership's agreement of limited partnership,
the financial condition or results of operations of your partnership, the
business and properties owned, the management compensation payable to your
general partner (which is our subsidiary) or its affiliates or any other matter
relating to your partnership, except it would result in the AIMCO Operating
Partnership substantially increasing its ownership of units of your partnership.
We will receive future distributions from your partnership for any units we
purchase.
CERTAIN LEGAL MATTERS
General. Except as set forth in this section, the AIMCO Operating
Partnership is not, based on information provided by your general partner (which
is our subsidiary), aware of any licenses or regulatory permits that would be
material to the business of your partnership, taken as a whole, and that might
be adversely affected by the AIMCO Operating Partnership's acquisition of units
as contemplated herein, or any filings, approvals or other actions by or with
any domestic or foreign governmental authority or administrative or regulatory
agency that would be required prior to the acquisition of units by the AIMCO
Operating Partnership pursuant to the offer as contemplated herein, other than
the filing with the SEC of a Tender Offer Statement on Schedule 14D-1 and any
amendments required thereto. While there is no present intent to delay the
purchase of units tendered pursuant to the offer pending receipt of any such
additional approval or the taking of any such action, there can be no assurance
that any such additional approval or action, if needed, would be obtained
without substantial conditions or that adverse consequences might not result to
your partnership's business, or that certain parts of your partnership's
business might not have to be disposed of or
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other substantial conditions complied with in order to obtain such approval or
action, any of which could cause the AIMCO Operating Partnership to elect to
terminate the offer without purchasing units hereunder. The AIMCO Operating
Partnership's obligation to purchase and pay for units is subject to certain
conditions, including conditions related to the legal matters discussed in this
section.
Antitrust. The AIMCO Operating Partnership does not believe that the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is applicable
to the acquisition of units contemplated by this offer.
Margin Requirements. The units are not "margin securities" under the
regulations of the Board of Governors of the Federal Reserve System and,
accordingly, those regulations generally are not applicable to this offer.
State Laws. The AIMCO Operating Partnership is not aware of any
jurisdiction in which the making of the offer is not in compliance with
applicable law. If the AIMCO Operating Partnership becomes aware of any
jurisdiction in which the making of the offer would not be in compliance with
applicable law, the AIMCO Operating Partnership will make a good faith effort to
comply with any such law. If, after such good faith effort, the AIMCO Operating
Partnership cannot comply with any such law, the offer will not be made to (nor
will tenders be accepted from or on behalf of) limited partners residing in such
jurisdiction. In those jurisdictions whose securities or blue sky laws require
the offer to be made by a licensed broker or dealer, the offer shall be made on
behalf of the AIMCO Operating Partnership, if at all, only by one or more
registered brokers or dealers licensed under the laws of that jurisdiction.
Certain Litigation
On March 24, 1998, certain persons claiming to own limited partner
interests in certain of the limited partnerships for which subsidiaries of IPT
act as general partner (excluding your partnership) filed a purported class and
derivative action in California Superior Court in the County of San Mateo
against AIMCO, Insignia, the general partners of the partnerships, certain
persons and entities who purportedly formerly controlled the general partners,
and additional entities affiliated with and individuals who are officers,
directors and/or principals of several of the defendants. The complaint contains
allegations that, among other things, (i) the defendants breached fiduciary
duties owed to the plaintiffs, or aided and abetted in those purported breaches,
by selling or agreeing to sell their "fiduciary positions" as stockholders,
officers and directors of the general partners for a profit and retaining said
profit rather than distributing it to the plaintiffs; (ii) the defendants
breached fiduciary duties, or aided and abetted in those purported breaches, by
mismanaging the partnerships and misappropriating assets of the partnerships by
(a) manipulating the operations of the partnerships to depress the trading price
of limited partnership units of the partnerships; (b) coercing and fraudulently
inducing unitholders to sell units to certain of the defendants at depressed
prices; and (c) using the voting control obtained by purchasing units at
depressed prices to entrench certain of the defendants' positions of control
over the partnerships; and (iii) the defendants breached their fiduciary duties
to the plaintiffs by (a) selling assets of the partnerships such as mailing
lists of unitholders and (b) causing the general partners to enter into
exclusive arrangements with their affiliates to sell goods and services to the
general partners, the unitholders and tenants of properties owned by the
partnerships. The complaint also alleges that the foregoing allegations
constitute violations of various California securities, corporate and
partnership statutes, as well as conversion and common law fraud. The complaint
seeks unspecified compensatory and punitive damages, an injunction blocking the
sale of control of the general partners and a court order directing the
defendants to discharge their fiduciary duties to the plaintiffs. On June 25,
1998, the defendants filed motions seeking dismissal of the action. In lieu of
responding to the motion, plaintiffs have filed an amended complaint. On October
14, 1998, the AIMCO and Insignia defendants filed demurrers to the amended
complaint. The demurrers (which are requests to dismiss the action as a matter
of law) were heard on February 8, 1999, but no decision has been reached by the
Court. While no assurances can be given, we believe that the ultimate outcome of
this litigation will not have a material adverse effect on us.
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FEES AND EXPENSES
The AIMCO Operating Partnership will not pay any fees or commissions to any
broker, dealer or other person for soliciting tenders of units pursuant to the
offer. The AIMCO Operating Partnership has retained River Oaks Partnership
Services, Inc. to act as Information Agent in connection with the offer. The
Information Agent may contact holders of units by mail, telephone, telex,
telegraph and personal interview and may request brokers, dealers and other
nominees to forward materials relating to the offer to beneficial owners of the
units. The AIMCO Operating Partnership will pay the Information Agent reasonable
and customary compensation for its services in connection with the offer, plus
reimbursement for out-of-pocket expenses, and will indemnify the Information
Agent against certain liabilities and expenses in connection therewith,
including liabilities under the Federal securities laws. The AIMCO Operating
Partnership will also pay all costs and expenses of printing and mailing this
Prospectus Supplement, the accompanying Prospectus, the Letter of Transmittal,
and the legal and accounting fees in connection with this offer. The AIMCO
Operating Partnership will also pay the fees of Stanger for providing the
fairness opinion for the offer. The AIMCO Operating Partnership estimates that
its total costs and expenses in making the offer (excluding the purchase price
of the units) will be approximately $50,000.
ACCOUNTING TREATMENT
Upon consummation of the offer, the AIMCO Operating Partnership will
account for its investment in the units acquired in the offer under the purchase
method of accounting. There will be no effect on the accounting treatment of
your partnership as a result of the offer.
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FEDERAL INCOME TAX CONSEQUENCES
The following summary is a general discussion of the material Federal
income tax consequences of the offer to (i) persons who tender some or all of
their units in exchange for OP Units pursuant to the offer, (ii) persons who
tender some or all of their units for cash pursuant to the offer and (iii)
persons who do not tender any of their units pursuant to the offer. This
discussion is based upon the Internal Revenue Code of 1986, as amended ("the
Code"), Treasury Regulations, rulings issued by the IRS, and judicial decisions,
all in effect as of the date of this offer and all of which are subject to
differing interpretations or change, possibly retroactively. This summary is
based on the assumptions that the AIMCO Operating Partnership and your
partnership will be operated in accordance with their respective organizational
documents and partnership agreements. This summary is for general information
only and does not purport to discuss all aspects of Federal income taxation
which may be important to you in light of your specific investment or tax
circumstances, or if you are subject to special tax rules (for example, if you
are a financial institution, broker-dealer, insurance company, or, except to the
extent discussed below, tax-exempt organization or foreign investor, as
determined for United States Federal income tax purposes). This summary assumes
that your units and any OP Units that you receive in the offer are capital
assets (generally, property held for investment). No advance ruling has been or
will be sought from the IRS regarding any matter discussed in this Prospectus
Supplement.
The Federal income tax treatment of an offeree participating in the offer
depends in some instances on determinations of fact and interpretations of
complex provisions of Federal income tax law. No clear precedent or authority
may be available on some questions. Accordingly, you should consult your tax
advisor regarding the Federal, state, local and foreign tax consequences to you
of selling or exchanging units pursuant to the offer or of a decision not to
sell or exchange in light of your specific tax situation.
TAX OPINIONS
Skadden, Arps, Slate, Meagher & Flom LLP ("Special Tax Counsel") has
delivered an opinion letter with regard to the material United States Federal
income tax consequences of the offer. The opinion letter of Special Tax Counsel
is filed as an exhibit to this Registration Statement. You may obtain a copy of
such opinion letter by sending a written request to the AIMCO Operating
Partnership.
The specific United States Federal income tax opinions that Special Tax
Counsel has provided are:
1. Commencing with AIMCO's initial taxable year ended December 31, 1994,
AIMCO was organized in conformity with the requirements for qualification
as a REIT under the Code, and its actual method of operation has enabled,
and its proposed method of operation will enable, AIMCO to meet the
requirements for qualification and taxation as a REIT. As noted in the
accompanying Prospectus, AIMCO's qualification and taxation as a REIT
depend upon its ability to meet, through actual annual operating results,
certain requirements, including requirements relating to distribution
levels and diversity of stock ownership, and the various qualification
tests imposed under the Code, the results of which have been represented by
the AIMCO's officers and will not be reviewed by Special Tax Counsel. No
assurance can be given that the actual results of AIMCO's future operations
for any one taxable year will satisfy the requirements for taxation as a
REIT under the Code.
2. The AIMCO Operating Partnership will be treated as a partnership and
not as an association taxable as a corporation for Federal income tax
purposes.
3. You will not recognize gain or loss for Federal income tax purposes
when you exchange your units solely for OP Units. If, immediately prior to
such exchange, the amount of your partnership's liabilities allocable to
the units you transfer to the AIMCO Operating Partnership exceeds the
amount of the AIMCO Operating Partnership's liabilities allocable to you
immediately after the exchange, you will receive a deemed distribution in
an amount equal to such liability relief and will recognize gain for
Federal income tax purposes to the extent that the amount of such deemed
distribution exceeds your aggregate adjusted tax basis in your OP Units.
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4. If you exchange your units for cash and OP Units, you will be treated
for Federal income tax purposes as selling some of your units for cash in a
taxable sale and contributing some of your units for OP Units in a tax-free
exchange. With respect to the units that you will be treated as selling for
cash, you will be taxed as described in paragraph number five below. With
respect to the units that you will be treated as exchanging for OP Units,
you will be taxed as described in paragraph number three above.
5. If you sell your units solely for cash, you will recognize gain or
loss for Federal income tax purposes in an amount equal to the difference
between (i) your amount realized on the sale and (ii) your adjusted tax
basis in the units you sold.
6. If you retain all or a portion of your units and your partnership
terminates for Federal income tax purposes, you will not recognize any gain
or loss as a result of such termination and your capital account in your
partnership will not be affected.
7. Because of the factual nature of the inquiry, no opinion is expressed
by Special Tax Counsel as to whether your exercise of a redemption right
with respect to an OP Unit would cause your contribution of units to the
AIMCO Operating Partnership to be a taxable transaction under the disguised
sale rules of the Code.
8. The discussion in the accompanying Prospectus under the captions
"FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS" and "FEDERAL
INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNIT HOLDERS" and
in this Prospectus Supplement under the caption "FEDERAL INCOME TAX
CONSEQUENCES" is a fair and accurate summary of the material United States
Federal income tax consequences of the offers and of the acquisition,
ownership and disposition of the OP Units and the AIMCO stock by a holder
who acquires the OP Units or AIMCO stock in connection with the offers,
subject to the qualifications set forth therein.
It must be emphasized that these opinions are based and conditioned upon
representations and covenants made by AIMCO and the AIMCO Operating Partnership
as to factual matters (including representations and covenants concerning
AIMCO's properties and the past, present and future conduct of its business and
your partnership's liabilities). These opinions are expressed as of the date of
the opinion letter and Special Tax Counsel has no obligation to advise AIMCO or
the AIMCO Operating Partnership of any subsequent change in the matters stated,
represented, or assumed or any subsequent change in the law. An opinion of
counsel is not binding on the IRS, and no assurance can be given that the IRS
will not challenge the above opinions of Special Tax Counsel.
TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR OP UNITS
Except as described below, you will not recognize gain or loss for Federal
income tax purposes when you exchange your units solely for OP Units. You may
recognize gain upon such exchange if, immediately prior to such exchange, the
amount of liabilities of your partnership allocable to the units you transferred
exceeds the amount of the AIMCO Operating Partnership liabilities allocable to
you immediately after such exchange. If this was true in your case, the excess
would be treated as a deemed distribution of cash to you from the AIMCO
Operating Partnership. This deemed cash distribution would be treated as a
nontaxable return of capital to the extent of your adjusted tax basis in your OP
Units and thereafter as a taxable gain.
The AIMCO Operating Partnership anticipates that, under most circumstances,
you will be allocated an amount of the AIMCO Operating Partnership liabilities,
as determined immediately after you exchange your units pursuant to the offer,
at least equal to the amount of liabilities of your partnership that were
allocable to your units prior to such exchange. Accordingly, the AIMCO Operating
Partnership anticipates that most persons who participate in the tender offer
would not recognize gain or loss as a result of an exchange of units solely for
OP Units pursuant to the offer.
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DISGUISED SALES
Under the Code, a transfer of property by a partner to a partnership
followed by a related transfer by the partnership of money or other property to
the partner is treated as a "disguised" sale if (1) the second transfer would
not have occurred but for the first transfer and (2) the second transfer "is not
dependent on the entrepreneurial risks of the partnership operations." In a
disguised sale, the partner is treated as if he or she sold the contributed
property to the partnership as of the date the property was contributed to the
partnership. In addition, unless a few technical exceptions apply, transfers of
money or other property between a partnership and a partner that are made within
two years of each other, including redemptions of OP Units made within two years
of a contribution of your units, must be reported to the IRS and are presumed to
be a "disguised" sale unless the facts and circumstances clearly establish that
the transfers do not constitute a sale.
While there is no authority applying the disguised sale rules to the
exercise of a redemption right by a partner with respect to a partnership
interest received in exchange for property, the exercise of a redemption right
with respect to OP Units within two years of the date of the contribution of
your units to the AIMCO Operating Partnership may be treated as a disguised
sale. If this treatment were to apply, you would be treated for Federal income
tax purposes as if, on the date of the contribution of your units, the AIMCO
Operating Partnership transferred to you an obligation to give you the
redemption proceeds. In that case, you would be required to recognize gain on
the disguised sale in such earlier year. Because of the factual nature of such
an inquiry, Special Tax Counsel is unable to opine whether your exercise of a
redemption right with respect to an OP Unit would cause your contribution of
units to the AIMCO Operating Partnership to be a taxable transaction under the
disguised sale rules of the Code.
If you are considering exchanging units for OP Units pursuant to the offer,
please read the description under the heading "Federal Income Taxation of the
AIMCO Operating Partnership and OP Unitholders -- Tax Consequences Upon
Contribution of Property to the AIMCO Operating Partnership" in the accompanying
Prospectus.
TAX CONSEQUENCES OF EXCHANGING UNITS FOR CASH AND OP UNITS
If you exchange your units for cash and OP Units, you will be treated as
selling some of your units for cash in a taxable sale and contributing some of
your units for OP Units in a tax-free exchange. Your adjusted tax basis in your
transferred units will be allocated between the units you will be deemed to have
sold and the units you will be deemed to have contributed to the AIMCO Operating
Partnership.
With respect to the units that you will be treated as selling, you will
recognize gain or loss in an amount equal to the difference between (i) your
"amount realized" on the sale and (ii) your adjusted tax basis in units you
sold. Your "amount realized" on such sale will be equal to the sum of the amount
of cash you received pursuant to the offer (that is, the offer consideration)
plus the amount of your partnership's liabilities attributed to the units you
sold. For purposes of these partial sale rules, the amount of your partnership's
liabilities attributed to the units you sold will be equal to the lesser of (i)
the excess of the amount of your partnership's liabilities allocable to you in
respect of the transferred units immediately prior to the exchange over the
amount of such liabilities allocable to you as determined immediately after the
exchange or (ii) the product of (A) the amount of your partnership's liabilities
allocable to you in respect of the units you are deemed to have sold immediately
prior to the exchange and (B) your "net equity percentage" with respect to those
units. Your "net equity percentage" will be equal to the percentage determined
by dividing (x) the cash you received in the exchange by (y) the excess of the
gross fair market value of the units in the exchange over the amount of your
partnership's liabilities allocable to you in respect of those units immediately
prior to the exchange. Thus, your tax liability could exceed the amount of cash
you receive in the sale.
With respect to the units that you will be treated as exchanging, rather
than selling, you will be taxed as described above under the heading "Tax
Consequences of Exchanging Units Solely for OP Units."
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TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR CASH
If you sell your units solely for cash, you will recognize gain or loss on
a sale of your units equal to the difference between (i) your "amount realized"
on the sale and (ii) your adjusted tax basis in the units you sold. The "amount
realized" with respect to a unit will be equal to the sum of the amount of cash
you received for your units (that is, the offer consideration) plus the amount
of the liabilities of your partnership allocable to such units (as determined
under Section 752 of the Code). Thus, your tax liability could exceed the amount
of cash you receive in the sale.
ADJUSTED TAX BASIS
If you acquired your units for cash:
- your initial tax basis in your units will be equal to such cash
investment in your partnership increased by your share of your
partnership's liabilities at the time such units were acquired;
- your initial tax basis generally has been increased by:
- your share of your partnership's income and gains and
- any increases in your share of your partnership's liabilities; and
- your initial tax basis generally has been decreased (but not below zero)
by:
- your share of cash distributions from your partnership,
- any decreases in your share of your partnership's liabilities,
- your share of your partnership's losses, and
- your share of nondeductible expenditures of your partnership that are
not chargeable to capital.
For purposes of determining your adjusted tax basis in your units
immediately prior to a disposition of such units, your adjusted tax basis will
include your share of your partnership's income, gain or loss for the taxable
year of disposition. If your adjusted tax basis is less than your share of your
partnership's liabilities (e.g., as a result of the effect of net loss
allocations and/or distributions exceeding the cost of your unit), the gain you
would recognize pursuant to the offer will exceed the cash proceeds you would
realize upon the sale of your units. The adjusted tax basis of the OP Units you
receive in exchange for your units pursuant to the offer will be equal to (i)
the sum of your adjusted tax basis in the units you transferred plus any gain
recognized in the exchange and will be reduced by (ii) any cash you received or
you were deemed to receive in the exchange.
CHARACTER OF GAIN OR LOSS RECOGNIZED PURSUANT TO THE OFFER
Except as described below, the gain or loss that you recognize on a sale or
exchange of a unit pursuant to the offer will be treated as a capital gain or
loss and will be treated as long-term capital gain or loss if your holding
period for the unit exceeds one year. Long-term capital gains recognized by
individuals and certain other noncorporate taxpayers generally will be subject
to a maximum Federal income tax rate of 20%. If the amount realized with respect
to a unit that is attributable to your share of "unrealized receivables" of your
partnership exceeds the tax basis attributable to those assets, such excess will
be treated as ordinary income. Among other things, "unrealized receivables"
include depreciation recapture for certain types of property. In addition, the
maximum Federal income tax rate applicable to persons who are noncorporate
taxpayers for net capital gains attributable to the sale of depreciable real
property (which may be determined to include an interest in a partnership such
as your partnership) held for more than one year is currently 25% (rather than
20%) to the extent of previously claimed depreciation deductions that would not
be treated as "unrealized receivables."
If you tender units in the offer, you will be allocated a share of your
partnership's taxable income or loss for the year of tender with respect to any
units sold or exchanged. You will not receive any future distributions
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on units that you tender on or after the date on which such units are accepted
for purchase, and accordingly, you may not receive any distributions with
respect to the income or loss. Such allocation and any cash distributed by your
partnership to you for that year will affect your adjusted tax basis in your
unit and, therefore, the amount of your taxable gain or loss upon a sale of a
unit pursuant to the offer.
PASSIVE ACTIVITY LOSSES
The passive activity loss rules of the Code limit the use of losses derived
from passive activities, which generally include investments in limited
partnership interests such as the units. An individual, as well as certain other
types of investors, generally cannot use losses from passive activities to
offset nonpassive activity income received during the taxable year. Passive
activity losses that are disallowed for a particular tax year are "suspended"
and may be carried forward to offset passive activity income earned by the
investor in future taxable years. In addition, such suspended losses may be
claimed as a deduction, subject to other applicable limitations, upon a taxable
disposition of the investor's interest in the passive activity.
Accordingly, if your investment in your partnership is treated as a passive
activity, you may be able to shelter gain from the sale of your units pursuant
to the offer with passive losses in the manner described below. If you receive
cash for all or a portion of your units pursuant to the offer and recognize a
gain on such sale, you will be entitled to use your current and "suspended"
passive activity losses (if any) from your partnership and other passive sources
to offset that gain. If you receive cash for all or a portion of your units
pursuant to the offer and recognize a loss on such sale, you will be entitled to
deduct that loss currently (subject to other applicable limitations) against the
sum of your passive activity income from your partnership for that year (if any)
plus any passive activity income from other sources for that year. If you
receive cash for all of your units pursuant to the offer, the balance of any
"suspended" losses from your partnership that were not otherwise utilized
against passive activity income as described in the two preceding sentences will
no longer be suspended and will therefore be deductible (subject to any other
applicable limitations) by you against any other income for that year,
regardless of the character of that income. Accordingly, you should consult your
tax advisor concerning whether, and the extent to which, you have available
suspended passive activity losses from your partnership or other investments
that may be used to offset gain from the sale of your units pursuant to the
offer.
TAX REPORTING
If you tender any units, you must report the transaction by filing a
statement with your Federal income tax return for the year of the tender which
provides certain required information to the IRS. To prevent the possible
application of back-up Federal income tax withholding of 31% with respect to
payment of the offer consideration, you may have to provide the AIMCO Operating
Partnership with your correct taxpayer identification number. See the
instructions to the Letter of Transmittal.
FOREIGN OFFEREES
Gain recognized by a foreign person on a transfer of a unit for cash, OP
Units, or a combination thereof, pursuant to the offer will be subject to
Federal income tax under the Foreign Investment in Real Property Tax Act of 1980
( "FIRPTA"). If you are a foreign person, the AIMCO Operating Partnership will
be required, under the FIRPTA provisions of the Code, to deduct and withhold 10%
of the amount realized by you on the disposition. The amount withheld would be
creditable against your Federal income tax liability and, if the amount withheld
exceeds your actual tax liability you could obtain a refund from the IRS by
filing a U.S. income tax return. See the Instructions to the Letter of
Transmittal.
TAX CONSEQUENCES OF A TERMINATION OF YOUR PARTNERSHIP
Section 708 of the Code provides that if there is a sale or exchange of 50%
or more of the total interest in capital and profits of a partnership within any
12-month period, such partnership terminates for Federal income tax purposes (a
"Termination"). The AIMCO Operating Partnership's acquisition of units pursuant
to the offer may result in a Termination of your partnership. If an acquisition
of units results in a
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Termination, the following Federal income tax events will be deemed to occur:
the terminated Partnership (the "Old Partnership") will be deemed to have
contributed all of its assets (subject to its liabilities) (the "Hypothetical
Contribution") to a new partnership (the "New Partnership") in exchange for
interests in the New Partnership and, immediately thereafter, the Old
Partnership will be deemed to have distributed interests in the New Partnership
(the "Hypothetical Distribution") to the AIMCO Operating Partnership and to the
offerees who do not tender all of their units (a "Remaining Offeree") in
proportion to their respective interests in the Old Partnership in liquidation
of the Old Partnership.
A Remaining Offeree will not recognize any gain or loss upon the
Hypothetical Distribution or upon the Hypothetical Contribution and the capital
accounts of the Remaining Offerees in the Old Partnership will carry over intact
to the New Partnership. A Termination will change (and possibly shorten) a
Remaining Offeree's holding period with respect to its units in your partnership
for Federal income tax purposes. Gains recognized by a Remaining Offeree on the
disposition of New Partnership interests with a holding period of 12 months or
less may be classified as short-term capital gains and subject to taxation at
ordinary income tax rates.
The New Partnership's adjusted tax basis in its assets will be the same as
the Old Partnership's basis in such assets immediately before the Termination. A
Termination will also cause the New Partnership to recalculate the depreciable
lives of its assets. This will cause the assets to be depreciated over a longer
period of time than if there had been no Termination. This would generally
decrease the annual average depreciation deductions allocable to the Remaining
Offerees for a number of years following consummation of the offer (thereby
increasing the taxable income allocable to their retained units in each such
year), but would have no effect on the total depreciation deductions available
over the useful lives of the assets of your partnership.
Elections as to tax matters previously made by the Old Partnership prior to
Termination will not be applicable to the New Partnership unless the New
Partnership chooses to make the same elections.
Additionally, upon a Termination, the Old Partnership's taxable year will
close for all offerees.
YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES
APPLICABLE TO YOU AS A RESULT OF A SALE OR EXCHANGE OF UNITS PURSUANT TO THE
OFFER.
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COMPARISON OF YOUR PARTNERSHIP AND THE
AIMCO OPERATING PARTNERSHIP
The information below highlights a number of the significant differences
between your partnership and the AIMCO Operating Partnership relating to, among
other things, form of organization, permitted investments, policies and
restrictions, management structure, compensation and fees, and investor rights.
The section immediately following this section compares certain of the
respective legal rights associated with the ownership of units with Common OP
Units and Preferred OP Units. These comparisons are intended to assist you in
understanding how your investment will be changed if, as a result of the offer,
your units are exchanged for Common OP Units or Preferred OP Units. FOR A
DISCUSSION OF CERTAIN OF THE SIGNIFICANT DIFFERENCES BETWEEN THE AIMCO OPERATING
PARTNERSHIP AND AIMCO, SEE "COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND
AIMCO" IN THE ACCOMPANYING PROSPECTUS. For a comparison of certain legal rights
associated with an investment in the Common OP Units and the Class A Common
Stock, and a similar comparison in respect of the Preferred OP Units and the
Class I Preferred Stock, see "Comparison of Common OP Units and Class A Common
Stock" in the accompanying Prospectus and "Comparison of Preferred OP Units and
Class I Preferred Stock" herein, respectively.
YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
Form of Organization and Assets Owned
<TABLE>
<S> <C>
Your partnership is a limited partnership The AIMCO Operating Partnership is organized
organized under Delaware law. as a Delaware limited partnership. The AIMCO
Operating Partnership owns interests (either
directly or through subsidiaries) in
numerous multifamily apartment properties.
The AIMCO Operating Partnership conducts
substantially all of the operations of
AIMCO, a corporation organized under
Maryland and as a REIT.
</TABLE>
Duration of Existence
<TABLE>
<S> <C>
Your partnership was presented to limited The term of the AIMCO Operating Partnership
partners as a finite life investment, with continues until December 31, 2093, unless
limited partners to receive regular cash the AIMCO Operating Partnership is dissolved
distributions out of your partnership's sooner pursuant to the terms of the AIMCO
Distributable Cash (as defined in your Operating Partnership's agreement of limited
partnership's agreement of limited partnership (the "AIMCO Operating
partnership). The termination date of your Partnership Agreement") or as provided by
partnership is December 31, 2008. law. See "Description of OP Units --
General" and "Description of OP
Units -- Dissolution and Winding Up" in the
accompanying Prospectus.
</TABLE>
Purpose and Permitted Activities
<TABLE>
<S> <C>
Your partnership has been formed to acquire, The purpose of the AIMCO Operating
develop, operate, lease, manage and hold for Partnership is to conduct any business that
investment and the production of income your may be lawfully conducted by a limited
partnership's property. Subject to partnership organized pursuant to the
restrictions contained in your partnership's Delaware Revised Uniform Limited Part-
agreement of limited partnership, your nership Act (as amended from time to time,
partnership may perform all acts necessary or any successor to such statute) (the
or appropriate in connection therewith and "Delaware Limited Partnership Act"),
reasonably related thereto, including provided that such business is to be
acquiring additional real or personal conducted in a manner that permits AIMCO to
property, borrowing money and creating be qualified as a REIT, unless AIMCO ceases
liens. to qualify as a REIT. The AIMCO Operating
Partner-
</TABLE>
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YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
<TABLE>
<S> <C>
ship is authorized to perform any and all
acts for the furtherance of the purposes and
business of the AIMCO Operating Partnership,
provided that the AIMCO Operating
Partnership may not take, or refrain from
taking, any action which, in the judgment of
its general partner could (i) adversely
affect the ability of AIMCO to continue to
qualify as a REIT, (ii) subject AIMCO to
certain income and excise taxes, or (iii)
violate any law or regulation of any
governmental body or agency (unless such ac-
tion, or inaction, is specifically consented
to by AIMCO). Subject to the foregoing, the
AIMCO Operating Partnership may invest in or
enter into partnerships, joint ventures, or
similar arrangements. The AIMCO Operating
partnership currently invests, and intends
to continue to invest, in a real estate
portfolio primarily consisting of
multifamily rental apartment properties.
</TABLE>
Additional Equity
<TABLE>
<S> <C>
The general partner of your partnership is The general partner is authorized to issue
authorized to issue additional limited additional partnership interests in the
partnership interests in your partnership AIMCO Operating Partnership for any
and may admit up to 35 additional limited partnership purpose from time to time to the
partners by selling not more than 46 units limited partners and to other persons, and
for cash and notes to selected persons who to admit such other persons as additional
fulfill the requirements set forth in your limited partners, on terms and conditions
partnership's agreement of limited and for such capital contributions as may be
partnership. The capital contribution need established by the general partner in its
not be equal for all limited partners. Upon sole discretion. The net capital
admission of such limited partners, an contribution need not be equal for all OP
amendment to the Certificate of your Unitholders. No action or consent by the OP
partnership shall be executed and Unitholders is required in connection with
acknowledged by the general partner, the the admission of any additional OP
original limited partner and by the general Unitholder. See "Description of OP
partner as attorney-in-fact for the Units -- Management by the AIMCO GP" in the
additional limited partners. accompanying Prospectus. Subject to Delaware
law, any additional partnership interests
may be issued in one or more classes, or one
or more series of any of such classes, with
such designations, preferences and relative,
participating, optional or other special
rights, powers and duties as shall be
determined by the general partner, in its
sole and absolute discretion without the
approval of any OP Unitholder, and set forth
in a written document thereafter attached to
and made an exhibit to the AIMCO Operating
Partnership Agreement.
</TABLE>
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YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
Restrictions Upon Related Party Transactions
<TABLE>
<S> <C>
Under your partnership's agreement of The AIMCO Operating Partnership may lend or
limited partnership, the general partner is contribute funds or other assets to its
authorized in connection with the management subsidiaries or other persons in which it
of your partnership to acquire goods from, has an equity investment, and such persons
or utilize the services of, firms and may borrow funds from the AIMCO Operating
persons affiliated with the general partner Partnership, on terms and conditions
in performing its duties and established in the sole and absolute
responsibilities under your partnership's discretion of the general partner. To the
agreement of limited partnership; provided extent consistent with the business purpose
that terms and conditions of such dealings of the AIMCO Operating Partnership and the
are as favorable as could be reasonably permitted activities of the general partner,
obtained from third parties offering similar the AIMCO Operating Partnership may transfer
goods and services of similar quality and assets to joint ventures, limited liability
reliability. In the event the general companies, partnerships, corporations,
partner determines that funds are reasonably business trusts or other business entities
necessary for acquiring or maintaining and in which it is or thereby becomes a
protecting the property of your partnership participant upon such terms and subject to
on commercially reasonable terms from one or such conditions consistent with the AIMCO
more of the partners without notification to Operating Partnership Agreement and ap-
any of the other partners, and all or a plicable law as the general partner, in its
portion of your partnership's property may sole and absolute discretion, believes to be
be conveyed as security for any advisable. Except as expressly permitted by
indebtedness, provided, however, that the the AIMCO Operating Partnership Agreement,
borrowing from limited partners will be neither the general partner nor any of its
undertaken only to the extent allowed by affiliates may sell, transfer or convey any
applicable law. The time and amounts of property to the AIMCO Operating Partnership,
repayment for such loans will be in the sole directly or indirectly, except pursuant to
discretion of the general partner and transactions that are determined by the
payments of principal and interest will be general partner in good faith to be fair and
fully paid prior to any distribution of reasonable.
funds to the partners unless such loans
contain a specific provision to the
contrary. The partner who lends money to
your partnership will be considered an
unrelated creditor with respect to such
loans to the extent allowed by applicable
law. Any loans from the general partner or
its affiliates will accrue interest at the
greater of 2 1/2% over the prime interest
rate charged by the Third National Bank in
Nashville, adjusted monthly, or the general
partner's or its affiliate's actual interest
cost in borrowing such amounts.
</TABLE>
Borrowing Policies
<TABLE>
<S> <C>
The general partner of your partnership is The AIMCO Operating Partnership Agreement
authorized to borrow money in the ordinary contains no restrictions on borrowings, and
course of business and as security therefore the general partner has full power and
to mortgage all or any part of the real authority to borrow money on behalf of the
property of your partnership in addition to AIMCO Operating Partnership. The AIMCO
obtaining loans specifically provided for in Operating Partnership has credit agreements
your partnership's agreement of limited that restrict, among other things, its
partnership. Your partnership may also sell ability to incur indebtedness.
up to $40,000 of mortgage-backed bonds.
</TABLE>
S-77
<PAGE> 255
YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
Review of Investor Lists
<TABLE>
<S> <C>
Your partnership's agreement of limited Each OP Unitholder has the right, upon
partnership entitles the limited partners to written demand with a statement of the
have access to the current list of the names purpose of such demand and at such OP
and addresses of all limited partners at all Unitholder's own expense, to obtain a
reasonable times at the principal office of current list of the name and last known
your partnership. business, residence or mailing address of
the general partner and each other OP
Unitholder.
</TABLE>
Management Control
<TABLE>
<S> <C>
Subject to the limitations set forth under All management powers over the business and
applicable law and the terms of your affairs of the AIMCO Operating Partnership
partnership's agreement of limited are vested in AIMCO-GP, Inc., which is the
partnership, the general partner of your general partner. No OP Unitholder has any
partnership has the power to do all things right to participate in or exercise control
set forth in your partnership's agreement of or management power over the business and
limited partnership. The general partner affairs of the AIMCO Operating Partner-
represents your partnership in all ship. The OP Unitholders have the right to
transactions with third parties. No limited vote on certain matters described under
partner has any right or power to take part "Comparison of Your Units and AIMCO OP
in any way in the management of your Units -- Voting Rights" below. The general
partnership business except as may be partner may not be removed by the OP
expressly provided in your partnership's Unitholders with or without cause.
agreement of limited partnership or by
applicable statutes. In addition to the powers granted a general
partner of a limited partnership under
applicable law or that are granted to the
general partner under any other provision of
the AIMCO Operating Partnership Agreement,
the general partner, subject to the other
provisions of the AIMCO Operating
Partnership Agreement, has full power and
authority to do all things deemed necessary
or desirable by it to conduct the business
of the AIMCO Operating Partnership, to
exercise all powers of the AIMCO Operating
Partnership and to effectuate the purposes
of the AIMCO Operating Partnership. The
AIMCO Operating Partnership may incur debt
or enter into other similar credit,
guarantee, financing or refinancing
arrangements for any purpose upon such terms
as the general partner determines to be
appropriate, and may perform such other acts
and duties for and on behalf of the AIMCO
Operating Partnership as are provided in the
AIMCO Operating Partnership Agreement. The
general partner is authorized to execute,
deliver and perform certain agreements and
transactions on behalf of the AIMCO
Operating Partnership without any further
act, approval or vote of the OP Unitholders.
</TABLE>
Management Liability and Indemnification
<TABLE>
<S> <C>
Under your partnership's agreement of Notwithstanding anything to the contrary set
limited partnership, the general partner forth in the AIMCO Operating Partnership
will not incur any liabil- Agreement, the
</TABLE>
S-78
<PAGE> 256
YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
<TABLE>
<S> <C>
ity to your partnership or any other partner general partner is not liable to the AIMCO
for any mistakes or errors in judgment or Operating Partnership for losses sustained,
for any act or omission believed by it in liabilities incurred or benefits not derived
good faith to be within the scope of as a result of errors in judgment or
authority conferred upon it by your partner- mistakes of fact or law of any act or
ship's agreement of limited partnership. In omission if the general partner acted in
addition, your partnership will, to the good faith. The AIMCO Operating Partnership
extent permitted by law, indemnify and save Agreement provides for indemnification of
harmless the general partner against and AIMCO, or any director or officer of AIMCO
from any personal loss, liability (includ- (in its capacity as the previous general
ing attorneys' fees) or damage incurred by partner of the AIMCO Operating Partner-
it as the result of any act or omission in ship), the general partner, any officer or
its capacity as general partner unless such director of general partner or the AIMCO
loss, liability or damage results from gross Operating Partnership and such other persons
negligence or willful misconduct of the as the general partner may designate from
general partner. and against all losses, claims, damages,
liabilities, joint or several, expenses (in-
cluding legal fees), fines, settlements and
other amounts incurred in connection with
any actions relating to the operations of
the AIMCO Operating Partnership, as set
forth in the AIMCO Operating Partnership
Agreement. The Delaware Limited Partnership
Act provides that subject to the standards
and restrictions, if any, set forth in its
partnership agreement, a limited partnership
may, and shall have the power to, indemnify
and hold harmless any partner or other
person from and against any and all claims
and demands whatsoever. It is the position
of the Securities and Exchange Commission
and certain state securities administrations
that indemnification of directors and
officers for liabilities arising under the
Securities Act is against public policy and
is unenforceable pursuant to Section 14 of
the Securities Act of 1933 and their
respective state securities laws.
</TABLE>
Anti-Takeover Provisions
<TABLE>
<S> <C>
Under your partnership's agreement of Except in limited circumstances, the general
limited partnership, the limited partners partner has exclusive management power over
may remove a general partner for cause the business and affairs of the AIMCO
following written notice to the general Operating Partnership. The general partner
partner and a failure to cure the injury to may not be removed as general partner of the
your partnership upon a vote of the limited AIMCO Operating Partnership by the OP
partners owning a 51% of the outstanding Unitholders with or without cause. Under the
units. A general partner may not resign AIMCO Operating Partnership Agreement, the
without the consent of those persons owning general partner may, in its sole discretion,
51% of the units. Such consent is also prevent a transferee of an OP Unit from
necessary for the approval of a new general becoming a substituted limited partner
partner. A limited partner may not transfer pursuant to the AIMCO Operating Partnership
his interests without the written consent of Agreement. The general partner may exercise
the general partners which may be withheld this right of approval to deter, delay or
at the sole discretion of the general hamper attempts by persons to acquire a
partners. controlling interest in the AIMCO Operating
Partnership. Additionally, the AIMCO
Operating Partnership Agreement contains
restrictions on the ability of
</TABLE>
S-79
<PAGE> 257
YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
<TABLE>
<S> <C>
OP Unitholders to transfer their OP Units.
See "Description of OP Units -- Transfers
and Withdrawals" in the accompanying
Prospectus.
</TABLE>
Amendment of Your Partnership Agreement
<TABLE>
<S> <C>
Limited partners owning 51% of the units may With the exception of certain circumstances
amend your partnership's agreement of set forth in the AIMCO Operating Partnership
limited partnership, except that any Agreement, whereby the general partner may,
amendment which adversely affects a limited without the consent of the OP Unitholders,
partner's interest in your partnership's amend the AIMCO Operating Partnership
capital, profits or Distributable Cash must Agreement, amendments to the AIMCO Operating
be approved by such limited partner. On its Partnership Agreement require the consent of
own motion or the written request of the the holders of a majority of the outstanding
limited partner owning at least 10% of the Common OP Units, excluding AIMCO and certain
units, the general partner will submit the other limited exclusions (a "Majority in
proposed amendment to the limited partner Interest"). Amendments to the AIMCO
together with its recommendation as to such Operating Partnership Agreement may be
proposal. The general partner may require a proposed by the general partner or by
response within a specified time, but not holders of a Majority in Interest. Following
less than thirty days and failure to respond such proposal, the general partner will
in such time will constitute a vote which is submit any proposed amendment to the OP
consistent with the recommendation of the Unitholders. The general partner will seek
limited partners. the written consent of the OP Unitholders on
the proposed amendment or will call a
meeting to vote thereon. See "Description of
OP Units -- Amendment of the AIMCO Operating
Partnership Agreement" in the accompanying
Prospectus.
</TABLE>
Compensation and Fees
<TABLE>
<S> <C>
In addition to the right to distributions in The general partner does not receive
respect of its partnership interest and compensation for its services as general
reimbursement for all fees and expenses as partner of the AIMCO Operating Partnership.
set forth in your partnership's agreement of However, the general partner is entitled to
limited partnership, the general partner payments, allocations and distributions in
receives no fee for its services as general its capacity as general partner of the AIMCO
partner but may receive fees for additional Operating Partnership. In addition, the
services. Moreover, the general partner or AIMCO Operating Partnership is responsible
certain affiliates may be entitled to for all expenses incurred relating to the
compensation for additional services AIMCO Operating Partnership's ownership of
rendered. its assets and the operation of the AIMCO
Operating Partnership and reimburses the
general partner for such expenses paid by
the general partner. The employees of the
AIMCO Operating Partnership receive
compensation for their services.
</TABLE>
Liability of Investors
<TABLE>
<S> <C>
Under your partnership's agreement of Except for fraud, willful misconduct or
limited partnership, the liability of each gross negligence, no OP Unitholder has
of the limited partners for its share of the personal liability for the AIMCO Operating
losses or debts of your partnership is Partnership's debts and obligations, and
limited to the total capital contribution of liability of the OP Unitholders for the
such limited partner plus, to the extent AIMCO Operating Partnership's debts and
that such limited partner has rightfully obligations is generally limited to the
received the return of such capital amount of their investment in the AIMCO
contribution, any sum, not in excess of such Operating Partnership.
</TABLE>
S-80
<PAGE> 258
YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
<TABLE>
<S> <C>
return, necessary to discharge liabilities However, the limitations on the liability of
of your partnership to all creditors who limited partners for the obligations of a
extended credit before such return; provided limited partnership have not been clearly
that the liability with respect to established in some states. If it were
rightfully returned capital contributions is determined that the AIMCO Operating Part-
limited to one year from the date of such nership had been conducting business in any
return. Notwithstanding the foregoing, the state without compliance with the applicable
original limited partner only maybe subject limited partnership statute, or that the
to a mandatory assessment of an amount not right or the exercise of the right by the
exceeding 50% of its total capital contri- holders of OP Units as a group to make
bution as provided in your partnership's certain amendments to the AIMCO Operating
agreement of limited partnership. Partnership Agreement or to take other
action pursuant to the AIMCO Operating
Partnership Agreement constituted
participation in the "control" of the AIMCO
Operating Partnership's business, then a
holder of OP Units could be held liable
under certain circumstances for the AIMCO
Operating Partnership's obligations to the
same extent as the general partner.
</TABLE>
Fiduciary Duties
<TABLE>
<S> <C>
Under your partnership's agreement of Unless otherwise provided for in the
limited partnership, the general partner relevant partnership agreement, Delaware law
must act as a fiduciary with respect of the generally requires a general partner of a
assets and business of your partnership. The Delaware limited partnership to adhere to
general partner must use its best efforts to fiduciary duty standards under which it owes
do all things and perform such duties as may its limited partners the highest duties of
be reasonably necessary to the successful good faith, fairness and loyalty and which
operation of your partnership. The general generally prohibit such general partner from
partner must devote such of its time and taking any action or engaging in any
that of its employees to your partnership transaction as to which it has a conflict of
business as may be reasonably necessary to interest. The AIMCO Operating Partnership
carry on and conduct your partnership's Agreement expressly authorizes the general
business. However, except as specifically partner to enter into, on behalf of the
provided in your partnership, the partners AIMCO Operating Partnership, a right of
may engage in whatever activities they first opportunity arrangement and other
choose, whether the same be competitive with conflict avoidance agreements with various
your partnership or otherwise, including affiliates of the AIMCO Operating
without limitation, the acquisition, owner- Partnership and the general partner, on such
ship, financing, syndication, development, terms as the general partner, in its sole
improvement, leasing, operation, management and absolute discretion, believes are
and brokerage of real property (including advisable. The AIMCO Operating Partnership
real property that may be in the vicinity of Agreement expressly limits the liability of
and competitive with real property owned by the general partner by providing that the
your partnership), without having or general partner, and its officers and
incurring any obligation to disclose or to directors will not be liable or accountable
offer any interest in such activities to any in damages to the AIMCO Operating
party to your partnership's agreement of Partnership, the limited partners or as-
limited partnership. signees for errors in judgment or mistakes
of fact or law or of any act or omission if
In general, your partnership's agreement of the general partner or such director or
limited partnership and the AIMCO Operating officer acted in good faith. See
Partnership Agreement have limitations on "Description of OP Units -- Fiduciary
the liability of the general partner but Responsibilities" in the accompanying
such limitations differ and provide more Prospectus.
protection for the general partner of the
AIMCO Operating Partnership.
</TABLE>
S-81
<PAGE> 259
YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
Federal Income Taxation
<TABLE>
<S> <C>
In general, there are no material The AIMCO Operating Partnership is not
differences between the taxation of your subject to Federal income taxes. Instead,
partnership and the AIMCO Operating each holder of OP Units includes in income
Partnership. its allocable share of the AIMCO Operating
Partnership's taxable income or loss when it
determines its individual Federal income tax
liability.
Income and loss from the AIMCO Operating
Partnership may be subject to the passive
activity limitations. If an investment in an
OP Unit is treated as a passive activity,
income and loss from the AIMCO Operating
Partnership generally can be offset against
income and loss from other investments that
constitute "passive activities" (unless the
AIMCO Operating Partnership is considered a
"publicity traded partnership", in which
case income and loss from the AIMCO
Operating Partnership can only be offset
against other income and loss from the AIMCO
Operating Partnership). Income of the AIMCO
Operating Partnership, however, attributable
to dividends from the Management
Subsidiaries (as defined below) or interest
paid by the Management Subsidiaries does not
qualify as passive activity income and
cannot be offset against losses from
"passive activities."
Cash distributions by the AIMCO Operating
Partnership are not taxable to a holder of
OP Units except to the extent they exceed
such Partner's basis in its interest in the
AIMCO Operating Partnership (which will
include such OP Unitholder's allocable share
of the AIMCO Operating Partnership's nonre-
course debt).
Each year, OP Unitholders receive a Schedule
K-1 tax form containing tax information for
inclusion in preparing their Federal income
tax returns.
OP Unitholders are required, in some cases,
to file state income tax returns and/or pay
state income taxes in the states in which
the AIMCO Operating Partnership owns
property or transacts business, even if they
are not residents of those states. The AIMCO
Operating Partnership may be required to pay
state income taxes in certain states.
</TABLE>
S-82
<PAGE> 260
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS
YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS
Nature of Investment
<TABLE>
<CAPTION>
<S> <C> <C>
The partnership interests in your The Preferred OP Units constitute The Common OP Units constitute
partnership constitute equity in- equity interests entitling each equity interests entitling each OP
terests entitling each partner to holder of Preferred OP Units, when Unitholder to such partner's pro
its pro rata share of and as declared by the board of rata share of cash distributions
distributions to be made to the directors of the general partner made from Available Cash (as such
partners of your partnership. of the AIMCO Operating Part- term is defined in the AIMCO
nership, quarterly cash distribu- Operating Partnership Agreement)
tion at a rate of $0.50 per to the partners of the AIMCO
Preferred OP Unit, subject to ad- Operating Partnership. To the
justments from time to time on or extent the AIMCO Operating
after the fifth anniversary of the Partnership sells or refinances
issue date of the Preferred OP its assets, the net proceeds
Units. therefrom generally will be re-
tained by the AIMCO Operating
Partnership for working capital
and new investments rather than
being distributed to the OP
Unitholders (including AIMCO).
</TABLE>
Voting Rights
<TABLE>
<S> <C> <C>
Under your partnership's Except as otherwise required Under the AIMCO Operating
agreement of limited by applicable law or in the Partnership Agreement, the
partnership, upon the vote AIMCO Operating Partnership OP Unitholders have voting
of the limited partners Agreement, the holders of rights only with respect to
owning a 51% of the the Preferred OP Units will certain limited matters such
outstanding units, the have the same voting rights as certain amendments and
limited partners may amend as holders of the Common OP termination of the AIMCO
your partnership's agree- Units. See "Description of Operating Partnership
ment of limited partnership, OP Units" in the accompany- Agreement and certain
subject to certain ing Prospectus. So long as transactions such as the
limitations; dissolve and any Preferred OP Units are institution of bankruptcy
terminate your part- outstanding, in addition to proceedings, an assignment
nership; remove a general any other vote or consent of for the benefit of creditors
partner for cause, approve partners required by law or and certain transfers by the
the retirement of a general by the AIMCO Operating general partner of its
partner, approve the Partnership Agreement, the interest in the AIMCO
admission of a new general affirmative vote or consent Operating Partnership or the
partner; and approve or of holders of at least 50% admission of a successor
disapprove the sale of all of the outstanding Preferred general partner.
or a material portion of OP Units will be necessary
your partnership's prop- for effecting any amendment Under the AIMCO Operating
erty. A general partner may of any of the provisions of Partnership Agreement, the
cause the dissolution of the Partnership Unit general partner has the
your partnership by Designation of the Preferred power to effect the
retiring. In such event, the OP Units that materially and acquisition, sale, transfer,
limited partners holding 51% adversely affects the rights exchange or other
of the aggregate units may, or preferences of the disposition of any assets of
within ninety days of such holders of the Preferred OP the AIMCO Operating
occurrence, vote to continue Units. The creation Partnership (including, but
the business of your not limited to, the exercise
partnership. If no general or
partner remains in office,
all of
</TABLE>
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<PAGE> 261
YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS
<TABLE>
<S> <C> <C>
the limited partners may or issuance of any class or grant of any conversion,
elect to reform your series of partnership units, option, privilege or
partnership and elect a including, without subscription right or any
successor general partner limitation, any partner- other right available in
whereupon your partnership ship units that may have connection with any assets
will be dissolved and all of rights senior or superior to at any time held by the
the assets and liabilities the Preferred OP Units, AIMCO Operating Partnership)
of your partnership will be shall not be deemed to or the merger,
contributed to a new part- materially adversely affect consolidation,
nership and all parties to the rights or preferences of reorganization or other
your partnership's agreement the holders of Preferred OP combination of the AIMCO
of limited partnership will Units. With respect to the Operating Partnership with
become parties to such new exercise of the above or into another entity, all
partnership. described voting rights, without the consent of the
each Preferred OP Units OP Unitholders.
In general, you have greater shall have one (1) vote per
voting rights in your Preferred OP Unit. The general partner may
partnership than you will cause the dissolution of the
have as an OP Unitholder. OP AIMCO Operating Partnership
Unitholders can not remove by an "event of withdrawal,"
the general partner of the as defined in the Delaware
AIMCO Operating Partner- Limited Partnership Act
ship. (including, without limi-
tation, bankruptcy), unless,
within 90 days after the
withdrawal, holders of a
"majority in interest," as
defined in the Delaware
Limited Partnership Act,
agree in writing, in their
sole and absolute
discretion, to continue the
business of the AIMCO
Operating Partnership and to
the appointment of a
successor general partner.
The general partner may
elect to dissolve the AIMCO
Operating Partnership in its
sole and absolute
discretion, with or without
the consent of the OP
Unitholders. See "Descrip-
tion of OP
Units -- Dissolution and
Winding Up" in the accom-
panying Prospectus.
OP Unitholders cannot remove
the general partner of the
AIMCO Operating Partnership
with or without cause.
</TABLE>
Distributions
<TABLE>
<S> <C> <C>
Your partnership's agreement Holders of Preferred OP Subject to the rights of
of limited partnership Units will be entitled to holders of any outstanding
specifies how the cash receive, when and as Preferred OP Units, the
available for distribution, declared by the board of AIMCO Operating Partnership
whether arising from directors of the general Agreement requires the
operations or sales or partner of the AIMCO general partner to
refinancing, is to be Operating Partner-
</TABLE>
S-84
<PAGE> 262
<TABLE>
<CAPTION>
YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS
<S> <C> <C>
shared among the partners. ship, quarterly cash cause the AIMCO Operating
Distributions from distributions at the rate of Partnership to distribute
Distributable Cash will be $0.50 per Preferred OP Unit; quarterly all, or such
made quarterly, on or about provided, however, that at portion as the general
January 15, April 15, July any time and from time to partner may in its sole and
15 and October 15 for each time on or after the fifth absolute discretion
fiscal year, or for such anniversary of the issue determine, of Available Cash
shorter period as may be date of the Preferred OP (as defined in the AIMCO
applicable. The Units, the AIMCO Operating Operating Partnership
distributions payable to the Partnership may adjust the Agreement) generated by the
partners are not fixed in annual distribution rate on AIMCO Operating Partnership
amount and depend upon the the Preferred OP Units to during such quarter to the
operating results and net the lower of (i) 2.00% plus general partner, the special
sales or refinancing pro- the annual interest rate limited partner and the
ceeds available from the then applicable to U.S. holders of Common OP Units
disposition of your Treasury notes with a on the record date es-
partnership's assets. Your maturity of five years, and tablished by the general
partnership has not made (ii) the annual dividend partner with respect to such
distributions in the past rate on the most recently quarter, in accordance with
and is not projected to make issued AIMCO non-convertible their respective interests
distributions in 1998. In preferred stock which ranks in the AIMCO Operating
general, you have greater on a parity with its Class H Partnership on such record
voting rights in your Cumulative Preferred Stock. date. Holders of any other
partnership than you will Such distributions will be Preferred OP Units issued in
have as an OP Unitholder. OP cumulative from the date of the future may have priority
Unitholders cannot remove original issue. Holders of over the general partner,
the general partner of the Preferred OP Units will not the special limited partner
AIMCO Operating Partnership. be entitled to receive any and holders of Common OP
distributions in excess of Units with respect to
cumulative distributions on distributions of Available
the Preferred OP Units. No Cash, distributions upon
interest, or sum of money in liquidation or other
lieu of interest, shall be distributions. See "Per
payable in respect of any Share and Per Unit Data" in
distribution payment or pay- the accompanying Prospectus.
ments on the Preferred OP
Units that may be in The general partner in its
arrears. sole and absolute discretion
may distribute to the OP
When distributions are not Unitholders Available Cash
paid in full upon the on a more frequent basis and
Preferred OP Units or any provide for an appropriate
Parity Units (as defined record date.
below), all distributions
declared upon the Preferred The AIMCO Operating Partner-
OP Units and any Parity ship Agreement requires the
Units shall be declared general partner to take such
ratably in proportion to the reasonable efforts, as
respective amounts of determined by it in its sole
distributions accumulated, and absolute discretion and
accrued and unpaid on the consistent with AIMCO's
Preferred OP Units and such qualification as a REIT, to
Parity Units. Unless full cause the AIMCO Operating
cumulative distributions on Partnership to distribute
the Preferred OP Units have sufficient amounts to en-
been declared and paid, able the general partner to
except in limited circum- transfer funds to AIMCO and
stances, no distributions enable AIMCO to pay stock-
may be declared or paid or holder dividends that will
set apart for payment by the
AIMCO Operating Partnership
and no other dis-
</TABLE>
S-85
<PAGE> 263
YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS
<TABLE>
<S> <C> <C>
tribution of cash or other (i) satisfy the requirements
property may be declared or for qualifying as a REIT
made, directly or under the Code and the
indirectly, by the AIMCO Treasury Regulations and
Operating Partnership with (ii) avoid any Federal
respect to any Junior Units income or excise tax
(as defined below), nor liability of AIMCO. See
shall any Junior Units be "Description of OP
redeemed, purchased or Units -- Distributions" in
otherwise acquired for the accompanying Prospectus.
consideration, nor shall any
other cash or other property
be paid or distributed to or
for the benefit of holders
of Junior Units. See
"Description of Preferred OP
Units -- Distributions."
</TABLE>
Liquidity and Transferability/Redemption Rights
<TABLE>
<CAPTION>
<S> <C> <C>
A limited partner may There is no public market There is no public market
transfer his units to any for the Preferred OP Units for the OP Units. The AIMCO
person and such person will and the Preferred OP Units Operating Partnership
become a substitute limited are not listed on any Agreement restricts the
partner if: (1) a written securities exchange. The transferability of the OP
assignment has been duly Preferred OP Units are Units. Until the expiration
executed and acknowledged by subject to restrictions on of one year from the date on
the assignor and assignee transfer as set forth in the which an OP Unitholder
and delivered to the general AIMCO Operating Partnership acquired OP Units, subject
partner, (2) the approval of Agreement. to certain exceptions, such
the general partner which OP Unitholder may not
may be withheld in the sole Pursuant to the AIMCO transfer all or any por-
discretion and which will be Operating Partnership tion of its OP Units to any
withheld if the general Agreement, until the transferee without the
partner reasonably believes expiration of one year from consent of the general
that the transfer violates the date on which a holder partner, which consent may
applicable securities law or of Preferred OP Units be withheld in its sole and
result in adverse tax acquired Preferred OP Units, absolute discretion. After
consequences, including the subject to certain the expiration of one year,
termination of your exceptions, such holder of such OP Unitholder has the
partnership for tax Preferred OP Units may not right to transfer all or any
purposes, (3) the assignee transfer all or any portion portion of its OP Units to
has agreed to bound by all of its Preferred OP Units to any person, subject to the
of the terms of your any transferee without the satisfaction of certain con-
partnership's agreement of consent of the general ditions specified in the
limited partnership and partner, which consent may AIMCO Operating Partnership
absolute discretion of the be withheld in its sole and Agreement, including the
general partner has been absolute discretion. After general partner's right of
granted, (4) the assignee the expiration of one year, first refusal. See
represents he is at least 18 such holders of Preferred OP "Description of OP Units --
years of age, is a citizen Units has the right to Transfers and Withdrawals"
and resident of the U.S., transfer all or any portion in the accompanying
has sufficient financial of its Preferred OP Units to Prospectus.
resources to maintain the any person, subject to the After the first anniversary
interest acquired and that satisfaction of certain of becoming a holder of
he is not acquiring the conditions specified in the Common OP Units, an OP
interest with a view to AIMCO Operating Partner- Unitholder has the right,
resell the interest and (5) ship Agreement, including subject to the terms and
the assignor and assignee the general partner's right conditions of the AIMCO
have complied with such of first refusal. Operating Partnership
other conditions as set Agreement, to
forth in your
</TABLE>
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YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS
<TABLE>
<S> <C> <C>
partnership's agreement of After a one-year holding require the AIMCO Operating
limited partnership. period, a holder may redeem Partnership to redeem all or
Preferred OP Units and a portion of the Common OP
There are no redemption receive in exchange Units held by such party in
rights associated with your therefor, at the AIMCO Oper- exchange for a cash amount
units. ating Partnership's option, based on the value of shares
(i) subject to the terms of of Class A Common Stock. See
any Senior Units (as defined "Description of OP
below), cash in an amount Units -- Redemption Rights"
equal to the Liquidation in the accompanying
Preference of the Preferred Prospectus. Upon receipt of
OP Units tendered for a notice of redemption, the
redemption, (ii) a number of AIMCO Operating Partnership
shares of Class A Common may, in its sole and
Stock of AIMCO that is equal absolute discretion but
in Value to the Liquidation subject to the restrictions
Preference of the Preferred on the ownership of Class A
OP Units tendered for Common Stock imposed under
redemption, or (iii) for AIMCO's charter and the
Preferred OP Units redeemed transfer restrictions and
after a two-year holding other limitations thereof,
period, a number of shares elect to cause AIMCO to
of Class I Preferred Stock acquire some or all of the
of AIMCO that pay an tendered Common OP Units in
aggregate amount of exchange for Class A Common
dividends equivalent to the Stock, based on an exchange
distributions on the ratio of one share of Class
Preferred OP Units tendered A Common Stock for each Com-
for redemption; provided mon OP Unit, subject to
that such shares are part of adjustment as provided in
a class or series of the AIMCO Operating
preferred stock that is then Partnership Agreement.
listed on the NYSE or an-
other national securities
exchange. See "Federal
Income Tax
Consequences -- Disguised
Sales." The Preferred OP
Units may not be redeemed at
the option of the AIMCO
Operating Partnership. See
"Description of Preferred OP
Units -- Redemption."
</TABLE>
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DESCRIPTION OF PREFERRED OP UNITS
GENERAL
The Preferred OP Units are the Class Two Partnership Preferred Units of the
AIMCO Operating Partnership.
RANKING
The Preferred OP Units will, with respect to distribution rights and rights
upon liquidation, dissolution or winding up of the AIMCO Operating Partnership,
effectively rank:(i) prior or senior to the Class I High Performance Units, the
Common OP Units and any other interest in the AIMCO Operating Partnership if the
holders of Preferred OP Units shall be entitled to the receipt of distributions
and amounts distributable upon liquidation, dissolution or winding up in
preference or priority to the holders of such interest (the Common OP Units and
such other interests are collectively referred to herein as "Junior Units");
(ii) on a parity with the Class B Partnership Preferred Units, the Class C
Partnership Preferred Units, the Class D Partnership Preferred Units, the Class
G Partnership Preferred Units, the Class H Partnership Preferred Units, the
Class J Partnership Preferred Units, the Class K Partnership Preferred Units and
with any other interest in the AIMCO Operating Partnership if the holders of
such interest and the Preferred OP Units shall be entitled to the receipt of
distributions and amounts distributable upon liquidation, dissolution or winding
up in proportion to their respective amounts of accumulated, accrued and unpaid
distributions or stated preferences, without preference or priority of one over
the other ("Parity Units"); and (iii) junior to the Class F Partnership
Preferred Units, the Class One Partnership Preferred Units and any other
interest in the AIMCO Operating Partnership if the holders of such interest
shall be entitled to the receipt of distributions or amounts distributable upon
liquidation, dissolution or winding up in preference or priority to the holders
of the Preferred OP Units ("Senior Units"). Junior Units, Parity Units and
Senior Units may be issued from time to time by the AIMCO Operating Partnership
without any approval or consent by holders of the Preferred OP Units.
Although proceeds upon liquidation, dissolution or winding up of the AIMCO
Operating Partnership will be made in accordance with the positive balance of
all partners capital accounts, the AIMCO Operating Partnership creates, to the
extent possible, the preference upon such events by specially allocating income,
if necessary, to the Preferred OP Units in an amount equal to their liquidation
preference.
DISTRIBUTIONS
Holders of Preferred OP Units are entitled to receive, when and as declared
by the board of directors of the general partner of the AIMCO Operating
Partnership, quarterly cash distributions at the rate of $0.50 per Preferred OP
Unit (equivalent to 8.0% per annum of the $25 stated liquidation preference);
provided, however, that at any time and from time to time on or after March 1,
2005, the AIMCO Operating Partnership may adjust the annual distribution rate on
the Preferred OP Units to the lower of (i) 2.0% plus the annual interest rate
then applicable to U.S. Treasury notes with a maturity of five years, and (ii)
the annual dividend rate on the most recently issued AIMCO non-convertible
preferred stock which ranks on a parity with its Class H Cumulative Preferred
Stock. A reduction in the distribution rate will reduce your rate of return on
the Preferred OP Units and possibly encourage you to redeem such units. Such
adjustment shall become effective upon the date the AIMCO Operating Partnership
issues a notice to such effect to the holders of the Preferred OP Units. Such
distributions are cumulative from the date of original issue, whether or not in
any distribution period or periods such distributions have been declared, and
shall be payable quarterly on February 15, May 15, August 15 and November 15 of
each year (or, if not a business day, the next succeeding business day) (each a
"Distribution Payment Date"), commencing on the first such date occurring after
the date of original issue. If the Preferred OP Units are issued on any day
other than a Distribution Payment Date, the first distribution payable on such
Preferred OP Units will be prorated for the portion of the quarterly period that
such Preferred OP Units are outstanding on the basis of twelve 30-day months and
a 360-day year. Distributions are payable in arrears to holders of record as
they appear on the records of the AIMCO Operating Partnership at the close of
business on the February 1, May 1, August 1 or
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November 1, as the case may be, immediately preceding each Distribution Payment
Date. Holders of Preferred OP Units will not be entitled to receive any
distributions in excess of cumulative distributions on the Preferred OP Units.
No interest, or sum of money in lieu of interest, shall be payable in respect of
any distribution payment or payments on the Preferred OP Units that may be in
arrears. Holders of any Preferred OP Units that are issued after the date of
original issuance are entitled to receive the same distributions as holders of
any Preferred OP Units issued on the date of original issuance.
When distributions are not paid in full upon the Preferred OP Units or any
Parity Units, or a sum sufficient for such payment is not set apart, all
distributions declared upon the Preferred OP Units and any Parity Units shall be
declared ratably in proportion to the respective amounts of distributions
accumulated, accrued and unpaid on the Preferred OP Units and accumulated,
accrued and unpaid on such Parity Units. Except as set forth in the preceding
sentence, unless distributions on the Preferred OP Units equal to the full
amount of accumulated, accrued and unpaid distributions have been or
contemporaneously are declared and paid, or declared and a sum sufficient for
the payment thereof has been or contemporaneously is set apart for such payment,
for all past distribution periods, no distributions shall be declared or paid or
set apart for payment by the AIMCO Operating Partnership with respect to any
Parity Units. Unless full cumulative distributions (including all accumulated,
accrued and unpaid distributions) on the Preferred OP Units have been declared
and paid, or declared and set apart for payment, for all past distribution
periods, no distributions (other than distributions or distributions paid in
Junior Units or options, warrants or rights to subscribe for or purchase Junior
Units) may be declared or paid or set apart for payment by the AIMCO Operating
Partnership and no other distribution of cash or other property may be declared
or made, directly or indirectly, by the AIMCO Operating Partnership with respect
to any Junior Units, nor shall any Junior Units be redeemed, purchased or
otherwise acquired (except for a redemption, purchase or other acquisition of
Common OP Units made for purposes of an employee incentive or benefit plan of
AIMCO, the AIMCO Operating Partnership or any subsidiary) for any consideration
(or any monies be paid to or made available for a sinking fund for the
redemption of any such Junior Units), directly or indirectly, by the AIMCO
Operating Partnership (except by conversion into or exchange for Junior Units,
or options, warrants or rights to subscribe for or purchase Junior Units), nor
shall any other cash or other property be paid or distributed to or for the
benefit of holders of Junior Units. Notwithstanding the foregoing provisions of
this paragraph, the AIMCO Operating Partnership shall not be prohibited from (i)
declaring or paying or setting apart for payment any distribution on any Parity
Units or (ii) redeeming, purchasing or otherwise acquiring any Parity Units, in
each case, if such declaration, payment, redemption, purchase or other
acquisition is necessary to maintain AIMCO's qualification as a REIT.
ALLOCATION
Holders of Preferred OP Units will be allocated net income of the AIMCO
Operating Partnership in an amount equal to the distributions made on such
holder's Preferred OP Units during the taxable year. Holders of Preferred OP
Units also will generally be allocated any net loss of the AIMCO Operating
Partnership that is not allocated to holders of Common OP Units or other
interests of the AIMCO Operating Partnership.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the AIMCO Operating Partnership, before any allocation of income or gain by the
AIMCO Operating Partnership shall be made to or set apart for the holders of any
Junior Units, to the extent possible, the holders of Preferred OP Units shall be
entitled to be allocated income and gain to effectively enable them to receive a
liquidation preference (the "Liquidation Preference") of $25 per Preferred OP
Unit, plus accumulated, accrued and unpaid distributions (whether or not earned
or declared) to the date of final distribution to such holders; but such holders
shall not be entitled to any further allocation of income or gain. Until the
holders of the Preferred OP Units have been paid the Liquidation Preference in
full, no allocation of income or gain will be made to any holder of Junior Units
upon the liquidation, dissolution or winding up of the AIMCO Operating
Partnership. If, upon any liquidation, dissolution or winding up of the AIMCO
Operating Partnership, the assets of the AIMCO Operating Partnership, or
proceeds thereof, distributable among the holders of Preferred OP Units shall be
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insufficient to pay in full the above described preferential amount and
liquidating payments on any Parity Units, then following certain allocations
made by the AIMCO Operating Partnership, such assets, or the proceeds thereof,
shall be distributed among the holders of Preferred OP Units and any such Parity
Units ratably in the same proportion as the respective amounts that would be
payable on such Preferred OP Units and any such Parity Units if all amounts
payable thereon were paid in full. A voluntary or involuntary liquidation,
dissolution or winding up of the AIMCO Operating Partnership will not include a
consolidation or merger of the AIMCO Operating Partnership with one or more
partnerships, corporations or other entities, or a sale or transfer of all or
substantially all of the AIMCO Operating Partnership's assets. Upon any
liquidation, dissolution or winding up of the AIMCO Operating Partnership, after
all allocations shall have been made in full to the holders of Preferred OP
Units and any Parity Units to enable them to receive their Liquidation
Preference, any Junior Units shall be entitled to receive any and all assets
remaining to be paid or distributed, and the holders of the Preferred OP Units
and any Parity Units shall not be entitled to share therein.
REDEMPTION
The Preferred OP Units may not be redeemed at the option of the AIMCO
Operating Partnership, and will not be required to be redeemed or repurchased by
the AIMCO Operating Partnership or AIMCO except if a holder of a Preferred OP
Unit effects a redemption, as described below. The AIMCO Operating Partnership
or AIMCO may purchase Preferred OP Units from time to time in the open market,
by tender or exchange offer, in privately negotiated purchases or otherwise.
After a one-year holding period, a holder may redeem Preferred OP Units and
receive in exchange therefor, at the AIMCO Operating Partnership's option, (i)
subject to the terms of any Senior Units, cash in an amount equal to the
Liquidation Preference of the Preferred OP Units tendered for redemption, (ii) a
number of shares of Class A Common Stock of AIMCO that is equal in Value to the
Liquidation Preference of the Preferred OP Units tendered for redemption, or
(iii) for Preferred OP Units redeemed after a two-year holding period, a number
of shares of Class I Preferred Stock of AIMCO that pay an aggregate amount of
dividends equivalent to the distributions on the Preferred OP Units tendered for
redemption; provided that such shares are part of a class or series of preferred
stock that is then listed on the NYSE or another national securities exchange.
The "Value" of shares of Class A Common Stock will be determined based on a
10-day average trading price of the shares, as set forth in the AIMCO Operating
Partnership's agreement of limited partnership. Before issuing any preferred
stock upon redemption of Preferred OP Units, AIMCO will register the issuance
and sale of such shares under the Securities Act of 1933. If shares of Class I
Preferred Stock or Class A Common Stock of AIMCO are issued in exchange for any
Preferred OP Units tendered for redemption, the Preferred OP Units that are
acquired by AIMCO will be converted to a class of AIMCO Operating Partnership
units that corresponds to the class of stock so issued.
VOTING RIGHTS
Except as otherwise required by applicable law or in the AIMCO Operating
Partnership's agreement of limited partnership, the holders of the Preferred OP
Units will have the same voting rights as holders of the Common OP Units. See
"Description of OP Units" in the accompanying Prospectus. So long as any
Preferred OP Units are outstanding, in addition to any other vote or consent of
partners required by law or by the AIMCO Operating Partnership's agreement of
limited partnership, the affirmative vote or consent of holders of at least 50%
of the outstanding Preferred OP Units will be necessary for effecting any
amendment of any of the provisions of the Partnership Unit Designation of the
Preferred OP Units that materially and adversely affects the rights or
preferences of the holders of the Preferred OP Units. The creation or issuance
of any class or series of AIMCO Operating Partnership units, including, without
limitation, any AIMCO Operating Partnership units that may have rights senior or
superior to the Preferred OP Units, will not be deemed to materially adversely
affect the rights or preferences of the holders of Preferred OP Units. With
respect to the exercise of the above described voting rights, each Preferred OP
Unit will have one (1) vote per Preferred OP Unit.
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RESTRICTIONS ON TRANSFER
Preferred OP Units will be subject to the same restrictions on transfer
applicable to Common OP Units, as set forth in the AIMCO Operating Partnership's
agreement of limited partnership.
DESCRIPTION OF CLASS I PREFERRED STOCK
The Class I Preferred Stock (a) ranks prior to the Class A Common Stock and
the Class E Preferred Stock, and any other class or series of capital stock of
AIMCO if the holders of the Class I Preferred Stock are to be entitled to the
receipt of dividends or of amounts distributable upon liquidation, dissolution,
and winding-up in preference or priority to the holders of shares of such class
or series ("Class I Junior Stock"), (b) ranks on a parity with the Class B
Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the
Class G Preferred Stock, the Class H Preferred Stock, the Class J Preferred
Stock and with any other class or series of capital stock of AIMCO, if the
holders of such class of stock or series and the Class I Preferred Stock are
entitled to the receipt of dividends and of amounts distributable upon
liquidation, dissolution or winding-up in proportion to their respective amounts
of accrued and unpaid dividends per share or liquidation preferences, without
preference or priority one over the other ("Class I Parity Stock") and (c) ranks
junior to any class or series of capital stock of AIMCO if the holders of such
class or series are entitled to the receipt of dividends or amounts
distributable upon liquidation, dissolution or winding-up in preference or
priority to the holders of the Class I Preferred Stock ("Class I Senior Stock").
Holders of Class I Preferred Stock are entitled to receive cash dividends
at the rate of 8.0% per annum of the $25 liquidation preference (equivalent to
$2.00 per annum per share). Such dividends are cumulative from the date of
original issue, and are payable quarterly on or before January 15, April 15,
July 15 and October 15 of each year, commencing July 15, 1999. Upon any
liquidation, dissolution or winding up of AIMCO, before payment or distribution
by AIMCO may be made to or set apart for the holders of any shares of Class I
Junior Stock, the holders of Class I Preferred Stock are entitled to receive a
liquidation preference of $25 per share (the "Class I Liquidation Preference"),
plus an amount equal to all accumulated, accrued and unpaid dividends to the
date of final distribution to such holders; but such holders shall not be
entitled to any further payment. If proceeds available for distribution are
insufficient to pay the preference described above and any liquidating payments
on any other shares of any class or series of Class I Parity Stock, then such
proceeds will be distributed among the holders of Class I Preferred Stock and
any such other Class I Parity Stock ratably in the same proportion as the
respective amount that would be payable on such Class I Preferred Stock and any
such other Class I Parity Stock if all amounts payable thereon were paid in
full.
On and after March 1, 2005, AIMCO may redeem shares of Class I Preferred
Stock, in whole or in part, at a cash redemption price equal to 100% of the
Class I Liquidation Preference plus all accrued and unpaid dividends to the date
fixed for redemption. The Class I Preferred Stock has no stated maturity and is
not subject to any sinking fund or mandatory redemption provisions.
Holders of shares of Class I Preferred Stock have no voting rights, except
that if distributions on Class I Preferred Stock or any series or class of Class
I Parity Stock are in arrears for six or more quarterly periods, the number of
directors constituting the AIMCO board of directors will be increased by two and
the holders of Class I Preferred Stock (voting together as a single class with
all other shares of Class I Parity Stock, which are entitled to similar voting
rights) will be entitled to vote for the election of the two additional
directors of AIMCO at any annual meeting of stockholders or at a special meeting
of the holders of the Class I Preferred Stock called for the purpose. The
affirmative vote of the holders of two-thirds of the outstanding shares of Class
I Preferred Stock will be required to amend the AIMCO charter in any manner that
would adversely affect the rights of the holders of Class I Preferred Stock, and
to approve the issuance of any capital stock that ranks senior to the Class I
Preferred Stock with respect to payment of dividends or upon liquidation,
dissolution, winding up or otherwise.
Ownership of shares of Class I Preferred Stock by any person will be
limited such that the sum of the aggregate value of all capital stock of AIMCO
(including all shares of Class I Preferred Stock) owned directly or
constructively by such person may not exceed 8.7% (or 15% in the case of certain
pension trusts,
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registered investment companies and Mr. Considine) of the aggregate value of all
shares of capital stock of AIMCO over (ii) the aggregate value of all shares of
capital stock of AIMCO (the "Class I Preferred Ownership Limit"). The AIMCO
board of directors may waive such ownership limit if evidence satisfactory to
the AIMCO board of directors and AIMCO's tax counsel is presented that such
ownership will not then or in the future jeopardize AIMCO's status as a REIT. As
a condition of such waiver, the AIMCO board of directors may require opinions of
counsel satisfactory to it and/or an undertaking from the applicant with respect
to preserving the REIT status of AIMCO. If shares of Class I Preferred Stock in
excess of the Class I Preferred Ownership Limit, or shares of Class I Preferred
Stock which would result in AIMCO being "closely held," within the meaning of
Section 856(h) of the Code, or which would otherwise result in AIMCO failing to
qualify as a REIT, are issued or transferred to any person, such issuance or
transfer will be null and void to the intended transferee, and the intended
transferee would acquire no rights to the Class I Preferred Stock. Shares of
Class I Preferred Stock transferred in excess of the Class I Preferred Ownership
Limit or other applicable limitations will automatically be transferred to a
trust for the exclusive benefit of one or more qualifying charitable
organizations to be designated by AIMCO. Shares transferred to such trust will
remain outstanding, and the trustee of the trust will have all voting and
dividend rights pertaining to such shares. The trustee of such trust may
transfer such shares to a person whose ownership of such shares does not violate
the Class I Preferred Ownership Limit or other applicable limitation. Upon a
sale of such shares by the trustee, the interest of the charitable beneficiary
will terminate, and the sales proceeds would be paid, first, to the original
intended transferee, to the extent of the lesser of (a) such transferee's
original purchase price (or the original market value of such shares if
purportedly acquired by gift or devise) and (b) the price received by the
trustee, and, second, any remainder to the charitable beneficiary. In addition,
shares of Class I Preferred Stock held in such trust are purchasable by AIMCO
for a 90-day period at a price equal to the lesser of the price paid for the
Class I Preferred Stock by the original intended transferee (or the original
market value of such shares if purportedly acquired by gift or devise) and the
market price for the Class I Preferred Stock on the date that AIMCO determines
to purchase the Class I Preferred Stock. The 90-day period commences on the date
of the violative transfer or the date that the AIMCO board of directors
determines in good faith that a violative transfer has occurred, whichever is
later. All certificates representing shares of Class I Preferred Stock bear a
legend referring to the restrictions described above.
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COMPARISON OF PREFERRED OP UNITS AND
CLASS I PREFERRED STOCK
PREFERRED OP UNITS
CLASS I PREFERRED STOCK
Nature of Investment
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The Preferred OP Units constitute equity The Class I Preferred Stock constitutes an
interests entitling each holder of Preferred equity interest entitling each holder of
OP Units to receive, when and as declared by Class I Preferred Stock to receive, when and
the board of directors of the general as declared by the AIMCO board of directors,
partner of the AIMCO Operating Partnership, cash distribution at a rate of $2.00 per
quarterly cash distribution at a rate of annum per share.
$0.50 per Preferred OP Unit, subject to
adjustments from time to time on or after
the fifth anniversary of the issue date of
the Preferred OP Units.
</TABLE>
Voting Rights
<TABLE>
<S> <C>
Except as otherwise required by applicable Holders of Class I Preferred Stock do not
law or in the AIMCO Operating Partnership's have any voting rights, except as set forth
agreement of limited partnership, the below and except as otherwise required by
holders of the Preferred OP Units will have applicable law.
the same voting rights as holders of the
Common OP Units. See "Description of OP If and whenever dividends on any shares of
Units" in the accompanying Prospectus. So Class I Preferred Stock or any series or
long as any Preferred OP Units are class of Class I Parity Stock are in arrears
outstanding, in addition to any other vote for six or more quarterly periods (whether
or consent of partners required by law or by or not consecutive), the number of directors
the AIMCO Operating Partnership's agreement then constituting the AIMCO board of
of limited partnership, the affirmative vote directors shall be increased by two (if not
or consent of holders of at least 50% of the already increased by reason of similar types
outstanding Preferred OP Units will be of provisions with respect to shares of
necessary for effecting any amendment of any voting preferred stock), and the holders of
of the provisions of the Partnership Unit shares of Class I Preferred Stock, together
Designation of the Preferred OP Units that with the holders of shares of all other
materially and adversely affects the rights voting preferred stock then entitled to
or preferences of the holders of the exercise similar voting rights, voting as a
Preferred OP Units. The creation or issuance single class regardless of series, will be
of any class or series of AIMCO Operating entitled to vote for the election of two
Partnership units, including, without additional directors of AIMCO. Whenever
limitation, any AIMCO Operating Partnership dividends in arrears and dividends for the
units that may have rights senior or current quarterly dividend period have been
superior to the Preferred OP Units, will not paid or declared and set aside in respect of
be deemed to materially adversely affect the the outstanding shares of the Class I
rights or preferences of the holders of Preferred Stock and the voting preferred
Preferred OP Units. With respect to the stock, then the right of the holders of
exercise of the above described voting Class I Preferred Stock and the voting
rights, each Preferred OP Units will have preferred stock to elect such additional two
one (1) vote per Preferred OP Unit. directors will cease and the terms of office
of such directors will terminate.
The affirmative vote or consent of at least
66 2/3% of the votes entitled to be cast by
the holders of Class I Preferred Stock and
Class I Parity Stock entitled to vote on
such matters, voting as a single class, will
be required to (i) authorize, create,
increase the authorized amount of, or issue
any shares of any class of Class I Senior
Stock or any security convertible into
shares of any class of Class I Senior Stock,
or (ii) amend, alter or repeal any provision
of, or add any provision to, the AIMCO
charter or
</TABLE>
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PREFERRED OP UNITS CLASS I PREFERRED STOCK
<TABLE>
<S> <C>
by-laws, if such action would materially
adversely affect the voting powers, rights
or preferences of the holders of the Class I
Preferred Stock; provided, however, that no
such vote of the Class I Preferred
Stockholders shall be required if, at or
prior to the time such proposed change,
provisions are made for the redemption of
all outstanding shares of Class I Preferred
Stock. The amendment of the AIMCO charter to
authorize, create, increase or decrease the
authorized amount of or to issue Class I
Junior Stock, Class I Preferred Stock or any
shares of any class of Class I Parity Stock
shall not be deemed to materially adversely
affect the voting powers, rights or
preferences of the holders of Class I
Preferred Stock.
With respect to the exercise of the above
described voting rights, each share of Class
I Preferred Stock will have one vote per
share, except that when any other class or
series of preferred stock has the right to
vote with the Class I Preferred Stock as a
single class, then the Class I Preferred
Stock and such other class or series shall
have one quarter of one vote per $25 of
stated liquidation preference.
</TABLE>
Distributions
<TABLE>
<S> <C>
Holders of Preferred OP Units are entitled Holders of Class I Preferred Stock are
to receive, when and as declared by the entitled to receive, when and as declared by
board of directors of the general partner of the AIMCO board of directors, out of funds
the AIMCO Operating Partnership, quarterly legally available for payment, cash
cash distributions at the rate of $0.50 per dividends at the rate of $2.00 per annum per
Preferred OP Unit; provided, however, that share. Such dividends are cumulative from
at any time and from time to time on or the date of original issue. Holders of Class
after the fifth anniversary of the issue I Preferred Stock are not be entitled to
date of the Preferred OP Units, the AIMCO receive any dividends in excess of
Operating Partnership may adjust the annual cumulative dividends on the Class I
distribution rate on the Preferred OP Units Preferred Stock. No interest, or sum of
to the lower of (i) 2.00% plus the annual money in lieu of interest, shall be payable
interest rate then applicable to U.S. in respect of any dividend payment or
Treasury notes with a maturity of five payments on the Class I Preferred Stock that
years, and (ii) the annual dividend rate on may be in arrears.
the most recently issued AIMCO
non-convertible preferred stock which ranks When dividends are not paid in full upon the
on a parity with its Class H Cumulative Class I Preferred Stock or any other class
Preferred Stock. Such distributions will be or series of Class I Parity Stock, all
cumulative from the date of original issue. dividends declared upon the Class I
Holders of Preferred OP Units will not be Preferred Stock and any shares of Class I
entitled to receive any distributions in Parity Stock will be declared ratably in
excess of cumulative distributions on the proportion to the respective amounts of
Preferred OP Units. No interest, or sum of dividends accumulated, accrued and unpaid on
money in lieu of interest, shall be payable the Class I Preferred Stock and such Class I
in respect of any distribution payment or Parity Stock. Unless dividends equal to the
payments on the Preferred OP Units that may full amount of all accumulated, accrued and
be in arrears. unpaid dividends on the Class I Preferred
Stock have been paid, or declared and set
When distributions are not paid in full upon apart for payment, except in limited
the Preferred OP Units or any Parity Units, circumstances, no dividends may be declared
all or paid or set apart for
</TABLE>
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PREFERRED OP UNITS CLASS I PREFERRED STOCK
<TABLE>
<S> <C>
distributions declared upon the Preferred OP payment by AIMCO and no other distribution
Units and any Parity Units will be declared of cash or other property may be declared or
ratably in proportion to the respective made, directly or indirectly, by AIMCO with
amounts of distributions accumulated, respect to any shares of Class I Junior
accrued and unpaid on the Preferred OP Units Stock, nor shall any shares of Class I
and such Parity Units. Unless full Junior Stock be redeemed, purchased or
cumulative distributions on the Preferred OP otherwise acquired for any consideration,
Units have been declared and paid, except in nor shall any other cash or other property
limited circumstances, no distributions may be paid or distributed to or for the benefit
be declared or paid or set apart for payment of holders of shares of Class I Junior
by the AIMCO Operating Partnership and no Stock. See "Description of Class I Preferred
other distribution of cash or other property Stock -- Dividends."
may be declared or made, directly or
indirectly, by the AIMCO Operating
Partnership with respect to any Junior
Units, nor shall any Junior Units be
redeemed, purchased or otherwise acquired
for consideration, nor shall any other cash
or other property be paid or distributed to
or for the benefit of holders of Junior
Units. See "Description of Preferred OP
Units -- Distributions."
</TABLE>
Liquidity and Transferability/Redemption
<TABLE>
<S> <C>
There is no public market for the Preferred Ownership of shares of Class I Preferred
OP Units and the Preferred OP Units are not Stock by any person will be limited such
listed on any securities exchange. The that the sum of the aggregate value of all
Preferred OP Units are subject to certain equity stock (including all shares of Class
restrictions on transferability set forth in I Preferred Stock) owned directly or
the AIMCO Operating Partnership Agreement. constructively by such person may not exceed
8.7% (or 15% in the case of certain parties)
Pursuant to the AIMCO Operating of the aggregate value of all outstanding
Partnership's agreement of limited shares of equity stock. Further, certain
partnership, until the expiration of one transfers which may have the effect of
year from the date on which a holder of causing AIMCO to lose its status as a REIT
Preferred OP Units acquired Preferred OP are void ab initio.
Units, subject to certain exceptions, such
holder of Preferred OP Units may not If any transfer of Class I Preferred Stock
transfer all or any portion of its Preferred occurs which, if effective, would result in
OP Units to any transferee without the any person beneficially or constructively
consent of the general partner, which owning Class I Preferred Stock in excess or
consent may be withheld in its sole and in violation of the Class I Preferred
absolute discretion. After the expiration of Ownership Limit, such shares of Class I
one year, such holders of Preferred OP Units Preferred Stock in excess of the Class I
has the right to transfer all or any portion Preferred Ownership Limit will be
of its Preferred OP Units to any person, automatically transferred to a trustee in
subject to the satisfaction of certain his capacity as trustee of a trust for the
conditions specified in the AIMCO Operating exclusive benefit of one or more charitable
Partnership's agreement of limited beneficiaries designated by AIMCO, and the
partnership, including the general partner's prohibited transferee will generally have no
right of first refusal. rights in such shares, except upon sale of
the shares by the trustee. The trustee will
After a one-year holding period, a holder have all voting rights and rights to
may redeem Preferred OP Units and receive in dividends with respect to shares of Class I
exchange therefor, at the AIMCO Operating Preferred Stock held in the trust, which
Partnership's option, (i) subject to the rights will be exercised for the benefit of
terms of any Senior Units, cash in an amount the charitable beneficiaries.
equal to the Liquidation Preference of the
Preferred OP Units tendered for The trustee may sell the Class I Preferred
Stock held
</TABLE>
S-95
<PAGE> 273
PREFERRED OP UNITS CLASS I PREFERRED STOCK
<TABLE>
<S> <C>
redemption, (ii) a number of shares of Class in the trust to AIMCO or a person,
A Common Stock of AIMCO that is equal in designated by the trustee, whose ownership
value to the Liquidation Preference of the of the Class I Preferred Stock will not
Preferred OP Units tendered for redemption, violate the Class I Preferred Ownership
or (iii) for Preferred OP Units redeemed Limit. Upon such sale, the interest of the
after a two-year holding period, a number of charitable beneficiaries in the shares sold
shares of Class I Preferred Stock of AIMCO will terminate and the trustee will
that pay an aggregate amount of dividends distribute to the prohibited transferee, the
equivalent to the distributions on the lesser of (i) the price paid by the
Preferred OP Units tendered for redemption; prohibited transferee for the shares or if
provided that such shares are part of a the prohibited transferee did not give value
class or series of preferred stock that is for the shares in connection with the event
then listed on the NYSE or another national causing the shares to be held in the trust,
securities exchange. See "Federal Income Tax the market price of such shares on the day
Consequences -- Disguised Sales." The of the event causing the shares to be held
Preferred OP Units may not be redeemed at in the trust and (ii) the price per share
the option of the AIMCO Operating received by the trustee from the sale or
Partnership. See "Description of Preferred other disposition of the shares held in the
OP Units -- Redemption." trust. Any proceeds in excess of the amount
payable to the prohibited transferee will be
payable to the charitable beneficiaries.
On and after March 1, 2005, AIMCO may, at
its option, redeem shares of Class I
Preferred Stock, in whole or from time to
time in part, at a cash redemption price
equal to 100% of the Class I Liquidation
Preference plus all accumulated, accrued and
unpaid dividends to the date fixed for
redemption. If full cumulative dividends on
all outstanding shares of Class I Preferred
Stock have not been paid or declared and set
apart for payment, no shares of Class I
Preferred Stock may be redeemed unless all
outstanding shares of Class I Preferred
Stock are simultaneously redeemed and
neither AIMCO nor any of its affiliates may
purchase or acquire shares of Class I
Preferred Stock otherwise than pursuant to a
purchase or exchange offer made on the same
terms to all holders of Class I Preferred
Stock. The redemption price for the Class I
Preferred Stock (other than any portion
thereof consisting of accumulated, accrued
and unpaid dividends) will be payable solely
with the proceeds from the sale by AIMCO of
capital stock of AIMCO or the sale by the
AIMCO Operating Partnership of partnership
interests in the AIMCO Operating Partnership
(whether or not such sale occurs
concurrently with such redemption).
</TABLE>
S-96
<PAGE> 274
CONFLICTS OF INTEREST
CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER
The general partner of your partnership became a majority-owned subsidiary
of AIMCO on October 1, 1998, when AIMCO merged with Insignia. Your general
partner became a wholly owned subsidiary on February 26, 1999 of AIMCO when IPT
merged with AIMCO. Accordingly, the general partner of your partnership has
substantial conflicts of interest with respect to the offer. The general partner
of your partnership has a fiduciary obligation to obtain a fair offer price for
you, even as a subsidiary of AIMCO. It also has a duty to remove the property
manager for your partnership's property, under certain circumstances, even
though the property manager is also an affiliate of AIMCO. The conflicts of
interest include the fact that a decision to remove, for any reason, the general
partner of your partnership from its current position as a general partner of
your partnership would result in a decrease or elimination of the substantial
management fees paid to an affiliate of the general partner of your partnership
for managing your partnership property. Additionally, we desire to purchase
units at a low price and you desire to sell units at a high price. The general
partner of your partnership makes no recommendation as to whether you should
tender or refrain from tendering your units. Such conflicts of interest in
connection with the offer and the operation of AIMCO differ from those conflicts
of interest that currently exist for your partnership. See "Risk
Factors -- Risks to Unitholders Who Tender Their Units in the Offer -- Conflicts
of Interest with Respect to the Offer."
CONFLICTS OF INTEREST THAT CURRENTLY EXIST FOR YOUR PARTNERSHIP
We own both the general partner of your partnership and the manager of your
partnership's property. The general partner does not receive an annual
management fee but may receive reimbursements for expenses incurred in its
capacity as general partner. The property manager received management fees of
$99,666 in 1996, $101,578 in 1997 and $105,495 in 1998. The AIMCO Operating
Partnership has no current intention of changing the fee structure for the
general partner or for the manager of your partnership's property.
COMPETITION AMONG PROPERTIES
Because AIMCO and your partnership both invest in apartment properties,
these properties may compete with one another for tenants. AIMCO's policy is to
limit its management to properties which do not compete with one another.
Furthermore, you should bear in mind that AIMCO anticipates acquiring properties
in general market areas where your partnership property is located. It is
believed that this concentration of properties in a general market area will
facilitate overall operations through collective advertising efforts and other
operational efficiencies. In managing AIMCO's properties, the AIMCO Operating
Partnership will attempt to reduce such conflicts between competing properties
by referring prospective customers to the property considered to be most
conveniently located for the customer's needs.
FEATURES DISCOURAGING POTENTIAL TAKEOVERS
Certain provisions of AIMCO's governing documents, as well as statutory
provisions under certain state laws, could be used by AIMCO's management to
delay, discourage or thwart efforts of third parties to acquire control of, or a
significant equity interest in, AIMCO and the AIMCO Operating Partnership. See
"Comparison of Your Partnership and the AIMCO Operating Partnership." AIMCO's
Charter limits ownership of its common stock by any single shareholder to 8.7%
of the outstanding shares (or 15% in the case of certain pension trusts,
registered investment companies and AIMCO's Chairman, Terry Considine). The 8.7%
ownership limit may have the effect of precluding acquisition of control of us
by a third party without the consent of our Board of Directors. Under AIMCO's
Charter, the Board of Directors has the authority to classify and reclassify any
of its unissued shares of capital stock into shares of preferred stock with such
preferences, rights, powers and restrictions as the Board of Directors may
determine. The authorization and issuance of preferred stock could have the
effect of delaying or preventing someone from taking control of us, even if a
change in control were in our shareholders' best interests. As a Maryland
corporation, AIMCO is subject to various Maryland laws which may have the effect
of discouraging offers to acquire us and of increasing the difficulty of
consummating any such offers, even if our acquisition would be in our
shareholders'
S-97
<PAGE> 275
best interests. The Maryland General Corporation Law restricts mergers and other
business combination transactions between us and any person who acquires
beneficial ownership of shares of our stock representing 10% or more of the
voting power without our Board of Directors' prior approval. Any such business
combination transaction could not be completed until five years after the person
acquired such voting power, and only with the approval of shareholders
representing 80% of all votes entitled to be cast and 66% of the votes entitled
to be cast, excluding the interested shareholder. Maryland law also provides
that a person who acquires shares of our stock that represent 20% or more of the
voting power in electing directors will have no voting rights unless approved by
a vote of two-thirds of the shares eligible to vote.
FUTURE EXCHANGE OFFERS
If the results of operations were to improve for your partnership under
AIMCO's management, AIMCO might be required to pay a higher price for any future
exchange offers it may make for units of your partnership. Although we have no
current plans to conduct future exchange offers for your units, our plans may
change based on future circumstances. However, we will not acquire any
additional units for a period of at least one year after expiration of the
offer. Any such future offers that we might make could be for consideration that
is more or less than the consideration we are currently offering.
SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES
The AIMCO Operating Partnership expects that approximately $1,150 will be
required to purchase all of the units sought in the offer, if such units are
tendered for cash excluding expenses as itemized below. The AIMCO Operating
Partnership will obtain all such funds from cash from operations, equity
issuances and short term borrowings. The AIMCO Operating Partnership will pay
all of the costs of the offer and not your partnership.
Below is an itemized statement of the estimated expenses incurred and to be
incurred in the offer by the AIMCO Operating Partnership:
<TABLE>
<S> <C>
Information Agent Fees...................................... $ 5,000
Accountant's Fees........................................... $ 5,000
Legal Fees.................................................. $10,000
Printing Fees............................................... $10,000
Stanger's Fees.............................................. $ 9,000
Other....................................................... $11,000
-------
Total....................................................... $50,000
=======
</TABLE>
If funds are borrowed to consummate the offer, we intend to use our amended
and restated credit agreement with Bank of America National Trust and Savings
Association ("Bank of America") and BankBoston, N.A. The credit agreement
provides a revolving credit facility of up to $100 million, including a swing
line of up to $30 million. The AIMCO Operating Partnership is the borrower under
the credit facility, and all obligations thereunder are guaranteed by AIMCO and
certain of its subsidiaries. The annual interest rate under the credit facility
is based on either LIBOR or Bank of America's reference rate; at the election of
the Company, plus an applicable margin. The AIMCO Operating Partnership elects
which interest rate will be applicable to particular borrowings under the credit
facility. The margin ranges between 2.25% and 2.75% in the case of LIBOR-based
loans and between 0.75% and 1.25% in the case of base rate loans, depending upon
a ratio of the AIMCO Operating Partnership's consolidated unsecured indebtedness
to the value of certain unencumbered assets. The credit facility matures on
September 30, 1999 unless extended, at the discretion of the lenders. The credit
facility provides for the conversion of the revolving facility into a three year
term loan. The availability of funds to the AIMCO Operating Partnership under
the credit facility is subject to certain borrowing base restrictions and other
customary restrictions, including compliance with financial and other covenants
thereunder. The financial covenants require the AIMCO Operating Partnership to
maintain a ratio of debt to gross asset value of no more than 0.55 to 1.0, an
interest coverage ratio of
S-98
<PAGE> 276
2.25 to 1.0 and a fixed charge coverage ratio of at least 1.6 to 1.0 through
December 31, 1998, 1.7 to 1.0 from January 1, 1999 through June 30, 1999, and
1.8 to 1.0 thereafter. In addition, the credit facility limits the AIMCO
Operating Partnership from distributing more than 80% of its Funds From
Operations (as defined) to holders of OP Units, imposes minimum net worth
requirements and provides other financial covenants related to certain
unencumbered assets.
We may obtain funds pursuant to a credit agreement entered into by our
subsidiary, Insignia Properties, L.P. ("IPLP"), with Lehman Commercial Paper,
Inc., as syndication agent, First Union National Bank, as administrative agent
and the lenders from time to time parties thereto. Pursuant to the credit
agreement, the lenders have made available to IPLP a revolving credit facility
of up to $50,000,000 at any one time outstanding which matures in a single
installment on December 30, 2000. Loans may be borrowed by IPLP at a rate based
upon the adjusted LIBOR Rate (as defined in the credit agreement) or the Base
Rate (as defined in the credit agreement). IPLP is obligated to pay a commitment
fee at a rate of 0.25% per annum on the undrawn portion of the line of credit.
The credit agreement includes customary covenants and restrictions on IPLP's
ability to, among other things, incur debt or contingent obligations, grant
liens, sell assets, make distributions or make investments. In addition, the
credit agreement contains certain financial covenants. The AIMCO Operating
Partnership intends to repay any funds borrowed out of working capital in the
ordinary course of business.
LEGAL MATTERS
Skadden, Arps, Slate, Meagher & Flom LLP has delivered an opinion to the
effect that the Common OP Units and the Preferred OP Units offered by this
Prospectus Supplement will be validly issued, fully paid and nonassessable.
Skadden, Arps, Slate, Meagher & Flom LLP has delivered an opinion with regard to
the material Federal income tax consequences of the offer. Skadden, Arps, Slate,
Meagher & Flom LLP has previously performed certain legal services on behalf of
AIMCO and the AIMCO Operating Partnership and their affiliates.
The two opinions of Skadden, Arps, Slate, Meagher & Flom LLP are not
attached to this Prospectus Supplement. However, upon receipt of a written
request by a unitholder or representative so designated in writing, a copy of
such opinions will be sent by the Information Agent.
EXPERTS
The financial statements of Sycamore Creek Associates, Limited as of
December 31, 1997 and 1996 and for each of the years in the three-year period
ended December 31, 1997, have been included herein and in the registration
statement in reliance upon the report of KPMG Peat Marwick LLP, independent
certified public accountants, appearing elsewhere herein, and upon the authority
of said firm as experts in accounting and auditing.
S-99
<PAGE> 277
INDEX TO THE FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Condensed Balance Sheet as of September 30, 1998
(unaudited)............................................... F-2
Condensed Statements of Operations for the nine months ended
September 30, 1998 and 1997 (unaudited)................... F-3
Condensed Statements of Cash Flows for the nine months ended
September 30, 1998 and 1997 (unaudited)................... F-4
Notes to Condensed Financial Statements..................... F-5
Independent Auditors Report................................. F-7
Balance Sheets as of December 31, 1997 and 1996............. F-8
Statements of Operations and Changes in Partners' Deficit
for the years ended December 31, 1997 and 1996............ F-9
Statements of Cash Flows for the years ended December 31,
1997 and 1996............................................. F-10
Notes to Financial Statements............................... F-11
</TABLE>
F-1
<PAGE> 278
SYCAMORE CREEK ASSOCIATES, LIMITED
CONDENSED BALANCE SHEET -- UNAUDITED
SEPTEMBER 30, 1998
<TABLE>
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 64,511
Receivables and deposits.................................... 110,577
Restricted escrows.......................................... 193,036
Other assets................................................ 96,391
Investment property
Land...................................................... $ 950,000
Building and related personal property.................... 9,867,378
-----------
10,817,378
-----------
Less: Accumulated depreciation............................ (7,164,395) 3,652,983
----------- -----------
Total assets...................................... $ 4,117,498
===========
LIABILITIES AND PARTNERS' DEFICIT
Accounts payable............................................ $ 71,321
Other accrued liabilities................................... 51,773
Property taxes payable...................................... 157,407
Tenant security deposits.................................... 56,016
Notes payable............................................... 7,155,171
Partners' deficit................................. (3,374,190)
-----------
Total liabilities and partners' deficit........... $ 4,117,498
-----------
-----------
</TABLE>
See accompanying notes to financial statements.
F-2
<PAGE> 279
SYCAMORE CREEK ASSOCIATES, LIMITED
CONDENSED STATEMENTS OF OPERATIONS -- UNAUDITED
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------
1998 1997
---------- ----------
<S> <C> <C>
Revenues:
Rental income............................................. $1,415,048 $1,374,745
Other income.............................................. 119,278 119,366
---------- ----------
Total revenues.................................... 1,534,326 1,494,111
Expenses:
Operating expenses........................................ 593,871 676,958
General and administrative expenses....................... 50,566 39,919
Depreciation expense...................................... 157,790 157,790
Interest expense.......................................... 496,760 502,796
Property tax expense...................................... 142,130 140,882
---------- ----------
Total expenses.................................... 1,441,117 1,518,345
Net income (loss)................................. $ 93,209 $ (24,234)
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 280
SYCAMORE CREEK ASSOCIATES, LIMITED
CONDENSED STATEMENTS OF CASH FLOWS -- UNAUDITED
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------
1998 1997
--------- ---------
<S> <C> <C>
Operating activities:
Net income (loss)......................................... $ 93,209 $ (24,234)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities.......................
Depreciation and amortization............................. 240,047 233,370
Changes in accounts:
Receivables and deposits and other assets.............. 171,399 315,848
Accounts payable and accrued expenses.................. (392,577) (351,325)
--------- ---------
Net cash provided by (used in) operating
activities...................................... 112,078 173,659
--------- ---------
Investing activities:
Property improvements and replacements.................... (68,199) (140,114)
Net (increase)/decrease in restricted escrows............. (6,444) 125,616
--------- ---------
Net cash provided by (used in) investing activities....... (74,643) (14,498)
--------- ---------
Financing activities:
Payments on mortgage...................................... (149,534) (155,501)
--------- ---------
Net cash provided by (used in) financing activities....... (149,534) (155,501)
--------- ---------
Net increase (decrease) in cash and cash equivalents...... (112,099) 3,660
Cash and cash equivalents at beginning of period.......... 176,610 77,913
--------- ---------
Cash and cash equivalents at end of period................ $ 64,511 $ 81,573
========= =========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 281
SYCAMORE CREEK ASSOCIATES, LIMITED
FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
(WITH INDEPENDENT AUDITORS' REPORT THEREON)
F-5
<PAGE> 282
SYCAMORE CREEK ASSOCIATES, LIMITED
NOTES TO CONDENSED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited financial statements of Sycamore Creek
Associates, Limited as of September 30, 1998 and for the nine months ended
September 30, 1998 and 1997 have been prepared in accordance with generally
accepted accounting principles for interim financial information. Accordingly,
they do not include all the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments considered necessary for a fair presentation have
been included and all such adjustments are of a recurring nature.
The financial statements should be read in conjunction with the audited
financial statements and notes thereto for the year ended December 31, 1997. It
should be understood that the accounting measurements at interim dates
inherently involve greater reliance on estimates than at year-end. The results
of operations for the interim periods are not necessarily indicative of the
results for the entire year.
NOTE B -- SUBSEQUENT EVENT
On March 17, 1998, Insignia Financial Group, Inc., an affiliate of the
corporate general partner of the Partnership, entered into an agreement to merge
its national residential property management operations and its controlling
interest in Insignia Properties Trust, with Apartment Investment and Management
Company ("AIMCO"), a publicly traded real estate investment trust. The merger
was completed effective October 1, 1998, and accordingly, as of that date AIMCO
acquired the corporate general partner and the company that manages the
Partnership.
F-6
<PAGE> 283
INDEPENDENT AUDITORS' REPORT
General Partners
Sycamore Creek Associates, Limited:
We have audited the accompanying balance sheets of Sycamore Creek
Associates, Limited as of December 31, 1997 and 1996, and the related statements
of operations and changes in partners' deficit and cash flows for the years then
ended. These financial statements are the responsibility of the partnership's
management. Our responsibility is to express an opinion on these financial
statements 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 financial position of Sycamore Creek Associates,
Limited as of December 31, 1997 and 1996, and the results of its operations and
its cash flows for the years then ended, in conformity with generally accepted
accounting principles.
/s/ KPMG PEAT MARWICK LLP
Greenville, South Carolina
March 2, 1998
F-7
<PAGE> 284
SYCAMORE CREEK ASSOCIATES, LIMITED
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
Cash and cash equivalents................................... $ 176,610 $ 26,198
Receivables and deposits.................................... 231,374 174,574
Insurance proceeds receivable (Note E)...................... 50,000 294,000
Restricted escrows (Note B)................................. 186,592 309,134
Other Assets................................................ 127,707 136,934
Investment properties (Note C):
Land...................................................... 950,000 950,000
Buildings and related personal property................... 9,799,179 9,366,901
----------- -----------
10,749,179 10,316,901
Less accumulated depreciation............................. (7,006,605) (6,796,220)
----------- -----------
3,742,574 3,520,681
----------- -----------
$ 4,514,857 $ 4,461,521
=========== ===========
LIABILITIES AND PARTNERS' DEFICIT
Liabilities:
Accounts payable (Note E)................................. $ 403,729 $ 373,547
Tenant security deposit liabilities....................... 64,765 51,715
Accrued taxes............................................. 187,183 198,217
Other liabilities......................................... 65,482 46,809
Mortgage notes payable (Note C)........................... 7,261,097 7,422,113
Partners' deficit........................................... (3,467,399) (3,630,880)
----------- -----------
$ 4,514,857 $ 4,461,521
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-8
<PAGE> 285
SYCAMORE CREEK ASSOCIATE, LIMITED
STATEMENTS OF OPERATIONS AND CHANGES IN PARTNERS' DEFICIT
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
Revenues:
Rental income............................................. $ 1,877,740 $ 1,863,228
Other income.............................................. 163,448 141,168
Casualty gain (Note E).................................... 147,000 --
----------- -----------
Total revenues.................................... 2,188,188 2,004,396
----------- -----------
Expenses:
Operating (Notes D and E)................................. 902,610 923,126
General and administrative (Note D)....................... 57,254 60,560
Depreciation.............................................. 210,385 189,287
Interest.................................................. 666,616 679,466
Property taxes............................................ 187,842 198,901
----------- -----------
Total expenses.................................... 2,024,707 2,051,340
----------- -----------
Net income (loss)........................................... 163,481 (46,944)
Partners' deficit at beginning of year...................... (3,630,880) (3,583,936)
----------- -----------
Partners' deficit at end of year............................ $(3,467,399) $ 3,630,880
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-9
<PAGE> 286
SYCAMORE CREEK ASSOCIATES, LIMITED
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1997 1996
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $ 163,481 $ (46,944)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation........................................... 210,385 189,287
Amortization of discounts and loan costs............... 81,289 78,753
(Gain) loss on casualty events......................... (147,000) 8,500
Change in accounts:
Receivables and deposits............................. (56,800) (14,373)
Other assets......................................... (13,919) 1,336
Accounts payable..................................... 30,182 43,344
Tenant security deposit liabilities.................. 13,050 4,920
Accrued taxes........................................ (11,034) 5,683
Other liabilities.................................... 18,673 (15,077)
--------- ---------
Net cash provided by operating activities......... 288,307 255,429
--------- ---------
Cash flows from investing activities:
Property improvements and replacements.................... (432,278) (94,111)
Insurance proceeds received, net of repairs expense....... 391,000 --
Net receipts from restricted escrows...................... 122,542 20,281
--------- ---------
Net cash provided by (used in) investing
activities...................................... 81,264 (73,830)
--------- ---------
Cash flows from financing activities:
Payments on mortgaged notes payable....................... (219,159) (202,536)
--------- ---------
Net cash used in financing activities............. (219,159) (202,536)
--------- ---------
Net increase (decrease) in cash and cash
equivalents..................................... 150,412 (20,937)
Cash and cash equivalents at beginning of year.............. 26,198 47,135
--------- ---------
Cash and cash equivalents at end of year.................... $ 176,610 $ 26,198
========= =========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest.................... $ 585,327 $ 601,951
========= =========
</TABLE>
See accompanying notes to financial statements.
F-10
<PAGE> 287
SYCAMORE CREEK ASSOCIATES, LIMITED
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization
Sycamore Creek Associates, Limited (the "Partnership") was organized as a
limited partnership under the laws of the State of Delaware pursuant to a
Limited Partnership Agreement and Certificate of Limited Partnership dated
September 28, 1984. The Partnership owns and operates a 295 unit apartment
complex, Sycamore Creek Apartments, in Cincinnati, Ohio.
The Partnership's Managing General Partner is Jacques-Miller Associates, an
affiliate of Insignia Financial Group, Inc. ("Insignia"). The property is
managed by Insignia Residential Group, an affiliate of Insignia.
Depreciation
Depreciation is computed principally by use of the declining balance and
straight-line methods based upon the estimated useful lives of various classes
of assets; buildings are depreciated over 25 years and the personal property
assets are depreciated over a 5 to 10 year period.
Other Assets
Other assets at December 31, 1997 and 1996 include unamortized deferred
loan costs of $113,787 and $136,934, respectively, which are amortized over the
term of the related borrowing. Deferred loan costs are shown net of accumulated
amortization.
Cash and Cash Equivalents
For purposes of reporting cash flows, the Partnership considers
unrestricted cash and unrestricted highly liquid investments, with an original
maturity of three months or less when purchased, to be cash and cash
equivalents.
Income Taxes
On the basis of Treasury Regulations, the general partners believe that the
Partnership will be classified as a partnership for Federal income tax purposes.
Accordingly, no provision for income taxes is made in the financial statements
of the Partnership. Taxable income or loss and cash distributions of the
Partnership are allocated in accordance with the partnership agreement and the
Internal Revenue Code and are reportable in the income tax returns of its
partners.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Tenant Security Deposits
The Partnership requires security deposits from lessees for the duration of
the lease and such deposits are included in receivables and deposits. The
security deposits are refunded when the tenant vacates, provided the tenant has
not damaged its space and is current on its rental payments.
F-11
<PAGE> 288
SYCAMORE CREEK ASSOCIATES, LIMITED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997 AND 1996
Reclassifications
Certain 1996 amounts have been reclassified to conform to the 1997
presentation. These reclassifications had no impact on net loss or partners'
deficit as previously reported.
NOTE B -- RESTRICTED ESCROWS
Restricted escrow deposits at December 31, 1997 and 1996 consist of the
following:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Capital Improvement Escrow -- A portion of the proceeds of
the 1992 loan refinancing was placed into a capital
improvement reserve account to be used for certain capital
improvements. The capital improvements were completed in
1996 and the excess funds were returned for property
operations. .............................................. $ -- $ 7,971
Reserve Escrow -- A portion of the proceeds of the 1992 loan
refinancing was placed into a reserve escrow and
maintained with the lender. The funds are used for certain
repair work, debt service, expenses and property taxes or
insurance. The funds in the reserve escrow exceed the
minimum balance required to be maintained by the lender
during the term of the loan. ............................. 186,592 301,163
-------- --------
$186,592 $309,134
======== ========
</TABLE>
NOTE C -- MORTGAGE NOTES PAYABLE
Mortgage notes payable at December 31, 1997 and 1996 consist of the
following:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
First mortgage note payable in monthly installments of
$65,417, including interest at 7.60%, due November 2002;
collateralized by land and buildings...................... $7,329,744 $7,548,903
Second mortgage note payable in interest only monthly
installments of $1,624, at a rate of 7.60%, with principal
due November 2002; collateralized by land and buildings... 256,342 256,342
---------- ----------
Principal balance at year end............................... 7,586,086 7,805,245
Less unamortized discount................................... (324,989) (383,132)
---------- ----------
$7,261,097 $7,422,113
========== ==========
</TABLE>
Scheduled principal payments of the mortgage notes during the years
subsequent to December 31, 1997 are as follows:
<TABLE>
<S> <C>
1998..................................................... $236,054
1999..................................................... 254,632
2000..................................................... 274,672
2001..................................................... 296,290
2002..................................................... 6,524,438
----------
$7,586,086
==========
</TABLE>
The principal balance of the mortgage notes may be prepaid in whole upon
payment of a penalty of the greater of one percent of the unpaid principal
balance at the time of prepayment or the present value of the
F-12
<PAGE> 289
SYCAMORE CREEK ASSOCIATES, LIMITED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997 AND 1996
excess of interest which would be incurred at the stated rate under the notes
over the interest which would be incurred at the Treasury constant maturity for
U.S. Government obligations.
NOTE D -- TRANSACTIONS WITH AFFILIATED PARTIES
The Partnership has no administrative or management employees and is
dependent on the Managing General Partner and its affiliates for the management
and administration of all partnership activities. The Partnership is obligated
to pay a property management fee equal to 5% of gross monthly collections. In
addition to the management fee, the partnership agreement provides for payments
to affiliates of a partnership administration fee and reimbursement of certain
expenses incurred by affiliates on behalf of the Partnership.
Transactions with the Managing General Partner and its affiliates are as
follows:
<TABLE>
<CAPTION>
1997 1996
TYPE OF TRANSACTION AMOUNT AMOUNT
------------------- -------- -------
<S> <C> <C>
Management fee.................................. $101,578 $99,666
Partnership administration fee.................. $ 18,427 $19,692
Reimbursement for services of affiliates........ $ 30,526 $33,056
Construction oversight costs.................... $ 23,313 $18,549
</TABLE>
NOTE E -- GAIN/LOSS ON CASUALTY EVENTS
During 1997 the Partnership's operating property experienced a flood which
destroyed part of the apartment complex. The Partnership will receive insurance
proceeds totaling $397,000. Of this amount, $347,000 had been received as of
December 31, 1997. The remaining $50,000 is recorded as a receivable at December
31, 1997. Costs to repair the affected units totaled approximately $531,000, of
which $281,000 was capitalized as property improvements and replacements and
$250,000 was expensed. This resulted in the Partnership recording a gain on
casualty of $147,000 in the 1997 statement of operations. Included in accounts
payable at December 31, 1997 is approximately $191,000 related to these repairs.
During 1996 the clubhouse of the Partnership apartment complex was
destroyed by fire. The Partnership received insurance proceeds totaling
$294,000, which was recorded as a receivable at December 31, 1996, and recorded
a loss on casualty of $8,500 that was included in operating expenses in the 1996
statement of operations. Costs to repair the clubhouse totaled $302,500 which
was included in accounts payable at December 31, 1996.
F-13
<PAGE> 290
PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P.
AS OF SEPTEMBER 30, 1998 AND FOR THE YEAR
ENDED DECEMBER 31, 1997 AND THE
NINE MONTHS ENDED SEPTEMBER 30, 1998
INTRODUCTION
On October 1, 1998, Apartment Investment and Management Company ("AIMCO")
completed its merger with Insignia Financial Group ("IFG") ("the IFG Merger").
In the IFG Merger, IFG's common stock was converted into 8,423,751 shares of
Class E Cumulative Convertible Preferred Stock of AIMCO ("Class E Preferred
Stock") whose issue date market value approximately equaled $292 million. In
addition to receiving the same dividends as holders of AIMCO Common Stock,
holders of Class E Preferred Stock will be entitled to a special dividend of
approximately $50 million in the aggregate. When that special dividend is paid
in full, the Class E Preferred Stock will automatically convert into AIMCO
Common Stock on a one-for-one basis, subject to antidilution adjustments, if
any. In addition, AIMCO assumed approximately $411 million in indebtedness and
other liabilities of IFG and its subsidiaries and subsidiaries of AIMCO, assumed
approximately $149.5 million of convertible securities and purchased
approximately $5 million of IFG stock prior to the Merger. AIMCO and Insignia
Properties Trust ("IPT") have completed a merger in which IPT has merged into
AIMCO or a subsidiary of AIMCO (the "IPT Merger"). In the IPT Merger, shares of
IPT common stock not held by AIMCO were converted into 4,826,745 shares of AIMCO
Class A Common Stock whose market value approximately equaled $152 million.
AIMCO assumed approximately $68 million in indebtedness. In connection with the
IFG Merger and the IPT Merger, AIMCO incurred approximately $55 million in
transaction costs for a combined transactional value of approximately $1,183
million. AIMCO contributed substantially all the assets and liabilities of
Insignia acquired in the Insignia Merger to AIMCO Properties, L.P. (together
with its subsidiaries and other controlled entities, the "Partnership") (and
together with entities in which that Partnership has a controlling financial
interest, the "Company") in exchange for 8,423,751 Class E Preferred Units. The
Class E Preferred Units have terms substantially the same as the Class E
Preferred Stock. In addition, AIMCO contributed substantially all the assets and
liabilities of IPT acquired in the IPT Merger to the Partnership in exchange for
4,826,745 limited partnership units in the Partnership ("OP Units"). In
connection with the IFG Merger, the Partnership assumed property management of
approximately 192,000 multifamily units which consist of general and limited
partnership investments in 115,000 units and third party management of 77,000
units. Insignia Properties Trust ("IPT"), which prior to the IFG Merger was a
subsidiary of IFG, owns a 32% weighted average general and limited partnership
interest in approximately 51,000 units.
Immediately following the IFG Merger, in order to satisfy certain
requirements of the Internal Revenue Code of 1986 (the "Code") applicable to
AIMCO's status as a REIT, AIMCO engaged in a reorganization (the "IFG
Reorganization") of the assets and operations of IFG whereby IFG's operations
are being conducted through corporations (the "Unconsolidated Subsidiaries") in
which the Partnership holds non-voting preferred stock that represents a 95%
economic interest, and certain officers and/or directors of AIMCO hold, directly
or indirectly, all of the voting common stock, representing a 5% economic
interest. As a result of the controlling ownership interest in the
Unconsolidated Subsidiaries held by others, the Partnership accounts for its
interest in the Unconsolidated Subsidiaries on the equity method.
In May and September of 1997, AIMCO directly or indirectly through a
subsidiary, acquired (the "NHP Stock Purchase") an aggregate of 6,930,122 shares
of common stock ("NHP Common Stock") of NHP. On December 8, 1997, AIMCO acquired
the remaining shares of NHP Common Stock in a merger transaction accounted for
as a purchase (the "NHP Merger"). As a result of the NHP Merger, AIMCO issued
6,759,148 shares of AIMCO Common Stock, valued at $180.8 million, and paid $86.5
million in cash. The total cost of the purchase of NHP was $349.5 million.
Substantially all assets and liabilities of NHP were contributed by AIMCO to the
Partnership.
In June 1997, the Company purchased a group of companies (the "NHP Real
Estate Companies") affiliated with NHP that hold general and limited partnership
interests in partnerships (the "NHP Partnerships") that own 534 conventional and
affordable multifamily apartment properties (the "NHP
P-1
<PAGE> 291
Properties") containing 87,659 units, a captive insurance subsidiary and certain
related assets (the "NHP Real Estate Acquisition"). The Company paid aggregate
consideration of $54.8 million in cash and warrants that entitle the holders to
purchase 399,999 shares of AIMCO Common Stock at an exercise price of $36.00 per
share. The Company engaged in a reorganization (the "NHP Real Estate
Reorganization") of its interests in the NHP Real Estate Companies, which
resulted in certain of the assets of the NHP Real Estate Companies being owned
by a limited partnership (the "Unconsolidated Partnership") in which the
Partnership holds 99% limited partner interest and certain directors and
officers of AIMCO directly or indirectly, hold a 1% general partner interest.
Immediately following the NHP Merger, in order to satisfy certain
requirements of the Code applicable to AIMCO's status as a REIT, AIMCO engaged
in a reorganization (the "NHP Reorganization") of the assets and operations of
NHP that resulted in the Master Property Management Agreement being terminated
and NHP's operations being conducted through Unconsolidated Subsidiaries in
which the AIMCO Operating Partnership holds non-voting preferred stock that
represents a 95% economic interest, and certain officers and/or directors of
AIMCO hold, directly or indirectly, all of the voting common stock, representing
a 5% economic interest. As a result of the controlling ownership interest in the
Unconsolidated Subsidiaries held by others, the Partnership accounts for its
interest in the Unconsolidated Subsidiaries on the equity method.
On May 8, 1998, AIMCO completed a merger with Ambassador Apartments, Inc.
("Ambassador"), pursuant to which Ambassador was merged into AIMCO (the
"Ambassador Merger"). Each outstanding share of stock ("Ambassador Common
Stock") of Ambassador, other than those shares held by AIMCO or Ambassador, were
converted into 0.553 (the "Conversion Ratio") shares of AIMCO Common Stock. Any
outstanding options to purchase Ambassador Common Stock were converted, at the
election of the option holder, into cash or options to purchase AIMCO Common
Stock at such options' then current exercise price divided by the Conversion
Ratio. In accordance with the Agreement and Plan of Merger, dated December 23,
1997 and supplemented by letter dated as of March 11, 1998 (the "Ambassador
Merger Agreement"), the outstanding shares of Class A Senior Cumulative
Convertible Preferred Stock of Ambassador, (the "Ambassador Preferred Stock")
were redeemed and converted into Ambassador Common Stock prior to the Ambassador
Merger. Following the consummation of the Ambassador Merger, a subsidiary of the
Partnership was merged with and into the Ambassador Operating Partnership (the
"Ambassador OP Merger"). Each outstanding unit of limited partnership interest
in the Ambassador Operating Partnership was converted into the right to receive
0.553 OP Units, and as a result, the Ambassador Operating Partnership became a
99.9% owned subsidiary partnership of the Partnership.
Also during 1997, the Partnership (i) (a) acquired 44 properties for
aggregate purchase consideration of $467.4 million, of which $56 million was
paid in the form of 1.9 million OP Units (b) paid $34.2 million in cash and
issued OP Units valued at $7.3 million in connection with the acquisition of
partnership interests through tender offers in certain partnerships ((a) and (b)
together are the "1997 Property Acquisitions") and (c) paid $19.9 million to
acquire 886,600 shares of Ambassador Common Stock (together with the 1997
Property Acquisitions, the "1997 Acquisitions"); (ii) sold (a) approximately
16,367,000 shares of AIMCO Common Stock for aggregate net proceeds of $513.4
million; (b) 750,000 shares of AIMCO Class B Cumulative Convertible Preferred
Stock for net proceeds of $75 million; and (c) 2,400,000 shares of AIMCO Class C
9% Cumulative Preferred Stock for net proceeds of $58.1 million; of which all
proceeds were contributed by AIMCO to the Partnership in exchange for 16,367,000
OP Units, 750,000 Class B Preferred Units, and 2,400,000 Class C Preferred Units
(collectively, the "1997 Stock Offerings"); and (iii) sold five real estate
properties (the "1997 Dispositions").
Also during 1998, AIMCO (i) (a) sold 4,200,000 shares of its Class D
Cumulative Preferred Stock for net proceeds of $101.5 million (the "Class D
Preferred Stock Offering"); (b) sold 4,050,000 shares of its Class G Cumulative
Preferred Stock for net proceeds of $98.0 million (the "Class G Preferred Stock
Offering"); (c) sold 2,000,000 shares of its Class H Cumulative Preferred Stock
for net proceeds of $48.1 million (the "Class H Preferred Stock Offering"); and
(d) sold 1,000,000 shares of its Class J Cumulative Convertible Preferred Stock
in a private placement for $100.0 million (the "Class J Preferred Stock
Offering"); of which all proceeds were contributed by AIMCO to the Partnership
in exchange for
P-2
<PAGE> 292
4,050,000 Class G Preferred Units, 2,000,000 Class H Preferred Units and
1,000,000 shares of Class J Preferred Units (collectively, the "1998 Stock
Offerings"); (ii) purchased 29 properties for aggregate purchase consideration
of $312.7 million, of which $52.2 million was paid in the form of OP Units (the
"1998 Acquisitions"); (iii) sold two real estate properties (the "1998
Dispositions"); (iv) contracted to purchase two properties for aggregate
purchase consideration of $62.1 million, of which $26.4 million will be paid in
the form of OP units (the "Probable Purchases") and (v) sold 1,400,000 Class B
Preferred Partnership Units of a subsidiary and warrants to purchase 875,000
shares of AIMCO Class A Common Stock for $35.0 million (the "Preferred
Partnership Unit Offering").
PRO FORMA FINANCIAL INFORMATION OF THE PARTNERSHIP (INSIGNIA MERGER)
The following Pro Forma Consolidated Balance Sheet (Insignia Merger) of the
Partnership as of September 30, 1998 has been prepared as if each of the
following transactions had occurred as of September 30, 1998: (i) the purchase
of nine properties for an aggregate purchase price of $62.5 million; (ii) the
Class J Preferred Stock Offering; (iii) the Probable Purchases; (iv) the IFG
Merger; (v) the IPT Merger; (vi) the IFG Reorganization; and (vii) the Preferred
Partnership Unit offering.
The following Pro Forma Consolidated Statement of Operations (Insignia
Merger) and Pro Forma Consolidated Statement of Cash Flows (Insignia Merger) of
the Partnership for the year ended December 31, 1997 has been prepared as if
each of the following transactions had occurred as of January 1, 1997: (i) the
1997 Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions;
(iv) the NHP Real Estate Acquisition; (v) the NHP Real Estate Reorganization;
(vi) the NHP Stock Purchase; (vii) the NHP Merger; (viii) the NHP
Reorganization; (ix) the 1998 Stock Offerings; (x) the 1998 Acquisitions; (xi)
the Probable Purchases; (xii) the 1998 Dispositions; (xiii) the Ambassador
Merger; (xiv) the IFG Merger; (xv) the merger between IPT and Angeles Mortgage
Investment Trust ("AMIT") ("the AMIT Merger"); (xvi) the IPT Merger; (xvii) the
IFG Reorganization; and (xviii) the Preferred Partnership Unit offering.
The following Pro Forma Consolidated Statement of Operations (Insignia
Merger) and Pro Forma Consolidated Statement of Cash Flows (Insignia Merger) of
the Partnership for the nine months ended September 30, 1998 has been prepared
as if each of the following transactions had occurred as of January 1, 1997: (i)
the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the Probable
Purchases; (iv) the 1998 Dispositions; (v) the Ambassador Merger; (vi) the IFG
Merger; (vii) the AMIT Merger; (viii) the IPT Merger; (ix) the IFG
Reorganization; and (x) the Preferred Partnership Unit offering.
The following Pro Forma Financial Information (Insignia Merger) is based,
in part, on the following historical financial statements: (i) the audited
Consolidated Financial Statements of the Partnership for the year ended December
31, 1997; (ii) the unaudited Consolidated Financial Statements of the
Partnership for the nine months ended September 30, 1998; (iii) the audited
Consolidated Financial Statements of Ambassador for the year ended December 31,
1997; (iv) the unaudited Consolidated Financial Statements of Ambassador for the
four months ended April 30, 1998; (v) the audited Consolidated Financial
Statements of IFG for the year ended December 31, 1997; (vi) the audited
Consolidated Financial Statements of AMIT for the year ended December 31, 1997;
(vii) the unaudited Consolidated Financial Statements of IFG for the nine months
ended September 30, 1998; (viii) the unaudited Financial Statements of AMIT for
the period from January 1, 1998 to September 17, 1998; (ix) the unaudited
Consolidated Financial Statements of NHP for the nine months ended September 30,
1997; (x) the unaudited Combined Financial Statements of the NHP Real Estate
Companies for the three months ended March 31, 1997; (xi) the unaudited
Financial Statements of NHP Southwest Partners, L.P. for the three months ended
March 31, 1997; (xii) the unaudited Combined Financial Statements of the NHP New
LP Entities for the three months ended March 31, 1997; (xiii) the unaudited
Combined Financial Statements of the NHP Borrower Entities for the three months
ended March 31, 1997; (xiv) the unaudited Historical Summaries of Gross Income
and Certain Expenses of The Bay Club at Aventura for the three months ended
March 31, 1997; (xv) the unaudited Historical Summary of Gross Income and Direct
Operating Expenses of Morton Towers for the six months ended June 30, 1997;
(xvi) the unaudited Combined Statement of Revenues and Certain Expenses of the
Thirty-Five Acquisition Properties for the six months ended June 30, 1997;
(xvii) the unaudited Statement of Revenues and Certain Expenses of First
Alexandria Associates, a Limited Partnership for the nine months ended September
30, 1997; (xviii) the unaudited Statement of Revenues and Certain Expenses of
Country
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<PAGE> 293
Lakes Associates Two, a Limited Partnership for the nine months ended September
30, 1997; (xix) the unaudited Statement of Revenues and Certain Expenses of
Point West Limited Partnership, A Limited Partnership for the nine months ended
September 30, 1997; (xx) the unaudited Statement of Revenues and Certain
Expenses for The Oak Park Partnership for the nine months ended September 30,
1997; (xxi) the audited Combined Historical Summary of Gross Income and Direct
Operating Expenses of the Realty Investment Apartment Communities I for the year
ended December 31, 1997, (xxii) the audited Combined Historical Summary or Gross
Income and Direct Operating Expenses of the Cirque Apartment Communities for the
year ended December 31, 1997; (xxiii) the audited Combined Historical Summary of
Gross Income and Direct Operating Expenses of the Realty Investment Apartment
Communities II for the year ended December 31, 1997; (xxiv) the audited
Historical Summary of Gross Income and Direct Operating Expenses of the Calhoun
Beach Club Apartments for the year ended December 31, 1997; (xxv) the unaudited
Combined Historical Summary of Gross Income and Direct Operating Expenses of the
Realty Investment Apartment Communities I for the nine months ended September
30, 1998; (xxvi) the unaudited Combined Historical Summary of Gross Income and
Direct Operating Expenses of the Cirque Apartment Communities for the three
months ended March 31, 1998; (xxvii) the unaudited Combined Historical Summary
of Gross Income and Direct Operating Expenses of the Realty Investment Apartment
Communities II for the nine months ended September 30, 1998; and (xxviii) the
unaudited Historical Summary of Gross Income and Direct Operating Expenses of
Calhoun Beach Club Apartments for the nine months ended September 30, 1998. The
following Pro Forma Financial Information should be read in conjunction with
such financial statements and the notes thereto incorporated by reference
herein.
The unaudited Pro Forma Financial Information (Insignia Merger) has been
prepared using the purchase method of accounting whereby the assets and
liabilities of NHP, the NHP Real Estate Companies, Ambassador, IFG, IPT, the
1997 Acquisitions, the 1998 Acquisitions, and the Probable Purchases 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 unaudited Pro Forma Financial Information (Insignia Merger)
is presented for informational purposes only and is not necessarily indicative
of the financial position or results of operations of the Partnership 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 the Partnership's management, all material
adjustments necessary to reflect the effects of these transactions have been
made.
P-4
<PAGE> 294
AIMCO PROPERTIES, L.P.
PRO FORMA CONSOLIDATED BALANCE SHEET (INSIGNIA MERGER)
AS OF SEPTEMBER 30, 1998
IN THOUSANDS, EXCEPT SHARE DATA
<TABLE>
<CAPTION>
COMPLETED
TRANSACTIONS IFG AIMCO BEFORE IFG
AND PROBABLE IFG MERGER IFG REORGANIZATION
HISTORICAL(A) PURCHASES(B) HISTORICAL(C) ADJUSTMENTS(D) REORGANIZATION(E) ADJUSTMENTS(F)
------------- ------------ ------------- -------------- ----------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Real estate.............. $2,355,122 $202,332 $ 44,488 $ 23,880(G) $2,625,822 $ --
Property held for sale... 42,212 -- -- -- 42,212 --
Investments in
securities............. -- -- -- 443,513(G)
(443,513)(H) -- --
Investments in and notes
receivable from
unconsolidated
subsidiaries........... 127,082 -- -- -- 127,082 59,195(I)
Investments in and notes
receivable from
unconsolidated real
estate partnerships.... 246,847 -- 232,892 444,570(G) 924,309 --
Mortgage notes
receivable............. -- -- 20,916 -- 20,916
Cash and cash
equivalents............ 43,681 6,107 73,064 -- 122,852 (17,897)(J)
Restricted cash.......... 83,187 -- 2,691 -- 85,878 (1,352)(J)
Accounts receivable...... 11,545 -- 54,060 (32,234)(G) 33,371 (5,471)(J)
Deferred financing
costs.................. 21,835 -- 7,020 (7,020)(G) 21,835 --
Goodwill................. 120,503 -- 19,503 111,018(G) 251,024 --
Property management
contracts.............. -- -- 86,419 31,147(G) 117,566 (79,195)(I)
Other assets............. 69,935 -- 20,128 (4,533)(G) 85,530 (2,860)(J)
---------- -------- -------- --------- ---------- --------
Total Assets..... $3,121,949 $208,439 $561,181 $ 566,828 $4,458,397 $(47,580)
========== ======== ======== ========= ========== ========
Secured notes payable.... $ 774,676 $122,568 $ 29,002 $ -- $ 926,246 $ --
Secured tax-exempt bond
financing.............. 399,925 -- -- -- 399,925 --
Secured short-term
financing.............. 50,000 (50,000) 332,691 (300,000)(G) 32,691 --
Unsecured short-term
financing.............. 50,800 (50,800) -- 300,000(G) 300,000 --
Accounts payable, accrued
and other
liabilities............ 131,799 -- 33,241 50,000(G)
53,333(G)
4,935(G)
2,525(G) 275,833 (27,580)(J)
Deferred tax liability... -- -- 18,802 1,198(G) 20,000 (20,000)(I)
Security deposits and
prepaid rents.......... 13,171 -- 3,533 (3,533) 13,171 --
---------- -------- -------- --------- ---------- --------
1,420,371 21,768 417,269 108,458 1,967,866 (47,580)
Minority interest........ 42,086 37,345 108,485 (108,485)(G) 79,431 --
Company-obligated
mandatorily redeemable
convertible securities
of a subsidiary
trust.................. -- -- 144,282 5,218 149,500 --
Redeemable Partnership
Units.................. 232,405 45,176 -- -- 277,581 --
Partners' capital and
shareholders' equity
Common stock........... -- -- 320 (320)(G) -- --
Additional paid-in
capital.............. -- -- (86,959) 86,959(G) -- --
Distributions in excess
of earnings.......... -- -- (22,216) 22,216(G) -- --
General and Special
Limited Partner...... 1,039,525 4,150 -- 443,513(H)
9,269(G) 1,496,457 --
Preferred Units........ 387,562 100,000 -- -- 487,562 --
---------- -------- -------- --------- ---------- --------
1,427,087 104,150 (108,855) 561,637 1,984,019 --
---------- -------- -------- --------- ---------- --------
Total Liabilities
and Equity..... $3,121,949 $208,439 $561,181 $ 566,828 $4,458,397 $(47,580)
========== ======== ======== ========= ========== ========
<CAPTION>
PRO FORMA
----------
<S> <C>
Real estate.............. $2,625,822
Property held for sale... 42,212
Investments in
securities.............
--
Investments in and notes
receivable from
unconsolidated
subsidiaries........... 186,277(K)
Investments in and notes
receivable from
unconsolidated real
estate partnerships.... 924,309
Mortgage notes
receivable............. 20,916
Cash and cash
equivalents............ 104,955
Restricted cash.......... 84,526
Accounts receivable...... 27,900
Deferred financing
costs.................. 21,835
Goodwill................. 251,024
Property management
contracts.............. 38,371
Other assets............. 82,670
----------
Total Assets..... $4,410,817
==========
Secured notes payable.... $ 926,246
Secured tax-exempt bond
financing.............. 399,925
Secured short-term
financing.............. 32,691
Unsecured short-term
financing.............. 300,000
Accounts payable, accrued
and other
liabilities............
248,253
Deferred tax liability... --
Security deposits and
prepaid rents.......... 13,171
----------
1,920,286
Minority interest........ 79,431
Company-obligated
mandatorily redeemable
convertible securities
of a subsidiary
trust.................. 149,500
Redeemable Partnership
Units.................. 277,581
Partners' capital and
shareholders' equity
Common stock........... --
Additional paid-in
capital.............. --
Distributions in excess
of earnings.......... --
General and Special
Limited Partner......
1,496,457
Preferred Units........ 487,562
----------
1,984,019
----------
Total Liabilities
and Equity..... $4,410,817
==========
</TABLE>
P-5
<PAGE> 295
- ---------------
(A) Represents the unaudited historical consolidated financial position of the
Partnership as of September 30, 1998.
(B) Represents adjustments to reflect the purchase of ten properties for an
aggregate purchase price of $140.2 million; the Class J Preferred Stock
Offering; the Probable Purchases; and the Preferred Partnership Unit
Offering.
(C) Represents the unaudited historical consolidated financial position of IFG
as of September 30, 1998.
(D) Represents the following adjustments occurring as a result of the IFG
Merger: (i) the issuance of 8,423,751 shares of AIMCO Common Stock, based
on consideration to holders of IFG common stock outstanding as of the date
of the IFG Merger; (ii) the issuance of 4,826,745 shares of AIMCO Class A
Common Stock to holders of IPT common stock (other than AIMCO); (iii) the
payment of a special dividend of $50,000; (iv) the assumption of $149,500
of the convertible debentures of IFG; (v) the allocation of the combined
purchase price of IFG and IPT based on the preliminary estimates of
relative fair market value of the assets and liabilities of IFG and IPT;
and (vi) the contribution by AIMCO of substantially all the assets and
liabilities of Insignia and IPT to the Partnership in exchange for OP
Units.
(E) Represents the effects of AIMCO's acquisition of IFG immediately after the
IFG Merger. These amounts do not give effect to the IFG Reorganization,
which includes the transfers of certain assets and liabilities of IFG to
the combined Unconsolidated Subsidiaries. The IFG Reorganization occurred
immediately after the IFG Merger so that AIMCO could maintain its
qualification as a REIT. This column is included as an intermediate step to
assist the reader in understanding the entire nature of the IFG Merger and
related transactions.
(F) Represents adjustments related to the IFG Reorganization, whereby,
following the IFG Merger, the Partnership contributed or sold to the
combined Unconsolidated Subsidiaries certain assets and liabilities of IFG,
primarily management contracts and related working capital assets and
liabilities related to IFG's third party property management operations.
The adjustments reflect the transfer of assets valued at the Partnership's
new basis resulting from the allocation of the purchase price of IFG. The
Partnership received non-voting preferred stock as consideration in
exchange for the net assets contributed. The net deferred tax liability is
assumed by the Unconsolidated Subsidiaries as it resulted from the assets
and liabilities transferred to the Unconsolidated Subsidiaries.
(G) In connection with the IFG Merger and the IPT Merger, AIMCO became
obligated to issue a total of 13,250,496 shares of AIMCO Common Stock
The total purchase price of IFG and IPT is $1,128,009, as follows:
<TABLE>
<S> <C>
Issuance of 8,423,751 shares of AIMCO Common Stock in the
IFG Merger, at $34.658 per share.......................... $ 291,949
Issuance of 4,826,745 shares of AIMCO Common Stock in the
IPT Merger, at $31.50 per share........................... 151,564
Assumption of Convertible Debentures........................ 149,500
Assumption of liabilities as indicated in the Merger
Agreement................................................. 397,459
Transaction costs........................................... 53,333
Generation of deferred tax liability........................ 20,000
Special dividend............................................ 50,000
Purchase of IFG Common Stock prior to merger................ 4,935
Consideration for options................................... 9,269
----------
Total............................................. $1,128,009
==========
</TABLE>
The purchase price was allocated to the various assets of IFG acquired in
the IFG Merger, as follows:
<TABLE>
<S> <C>
Purchase price.............................................. $1,128,009
Historical basis of IFG's assets acquired................... (561,181)
----------
Step-up to record the fair value of IFG's assets
acquired............................................... $ 566,828
==========
</TABLE>
P-6
<PAGE> 296
This step-up was applied to IFG's assets as follows:
<TABLE>
<S> <C>
Real estate................................................. $ 23,880
Investment in real estate partnerships...................... 444,570
Decrease in accounts receivable............................. (32,234)
Decrease in deferred loan costs............................. (7,020)
Management contracts........................................ 31,147
Increase in goodwill........................................ 111,018
Reduction in value of other assets.......................... (4,533)
--------
Total............................................. $566,828
========
</TABLE>
The fair value of IFG's assets, primarily the real estate and management
contracts, was calculated based on estimated future cash flows of the
underlying assets.
As of September 30, 1998, IFG's stockholder's equity was $(108,855), which
is detailed as follows:
<TABLE>
<S> <C>
Common stock................................................ $ 320
Additional paid-in capital.................................. (86,959)
Distributions in excess of earnings......................... (22,216)
---------
Total............................................. $(108,855)
=========
</TABLE>
Upon completion of the IFG Merger, the entire amount of the stockholder's
equity was eliminated.
In addition, the minority interest in other partnerships of IFG of $108,485
will be eliminated upon the IPT Merger.
At the time of the IFG Merger, AIMCO obtained unsecured short-term
financing of $300 million. The proceeds were used to repay secured
short-term financing of IFG that AIMCO assumed.
(H) Represents the issuance of a total of 13,250,496 OP Units to AIMCO and the
concurrent issuance of 13,250,496 shares of AIMCO Common Stock to IFG and
IPT stockholders, in exchange for all the shares of IFG and IPT common
stock.
In accordance with the IFG Merger Agreement, AIMCO became obligated to
issue 8,423,751 shares of Class E Preferred Stock, approximately equal to
$292 million. Each share of Class E Preferred Stock will automatically
convert to one share of AIMCO Common Stock upon the payment of the special
dividend thereon. As such, for the purpose of preparing the pro forma
financial statements, AIMCO's management believes that the Class E
Preferred Stock is substantially the same as AIMCO Common Stock, and that
the fair value of the Class E Preferred Stock approximates the fair value
of the AIMCO Common Stock. Upon the payment of the special dividend on the
Class E Preferred Stock and the conversion of the Class E Preferred Stock
to AIMCO Common Stock, the former IFG stockholders will own approximately
15.0% of the AIMCO Common Stock and the IPT stockholders will own
approximately 7.3% of AIMCO Common Stock. The special dividend on the Class
E Preferred Stock is intended to represent a distribution in an amount at
least equal to the earnings and profits of IFG at the time of the IFG
Merger, to which AIMCO succeeds.
Concurrent with the issuance of Class E Preferred Stock, the Partnership
will issue comparable Class E Preferred Units to AIMCO. The Class E
Preferred Units will have terms substantially the same as the Class E
Preferred Stock.
(I) Represents the increase in the Partnership's investment in Unconsolidated
Subsidiaries to reflect the contribution or sale of property management
contracts, including the related deferred tax liability, in exchange for
preferred stock and a note payable from the Unconsolidated Subsidiaries.
These assets and liabilities are valued at the Partnership's new basis
resulting from the allocation of the purchase price of IFG.
(J) Represents certain assets and liabilities of IFG, primarily related to the
management operations of IFG, contributed or sold by the Partnership to the
Unconsolidated Subsidiaries,
(K) Represents notes receivable from the Unconsolidated Subsidiaries of
$95,000, advances to the Unconsolidated Subsidiaries of $42,792, and equity
in the Unconsolidated Subsidiaries of $48,485. The
P-7
<PAGE> 297
combined pro forma balance sheet of the Unconsolidated Subsidiaries as of
September 30, 1998 is presented below, which reflects the effects of the
IFG Merger, the IPT Merger, and the IFG Reorganization as if such
transactions had occurred as of September 30, 1998.
P-8
<PAGE> 298
UNCONSOLIDATED SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET (INSIGNIA MERGER)
AS OF SEPTEMBER 30, 1998
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
IFG
HISTORICAL REORGANIZATION(I) PRO FORMA
---------- ----------------- ---------
<S> <C> <C> <C>
ASSETS
Real estate............................................ $ 22,376 $ -- $ 22,376
Cash and cash equivalents.............................. 16,919 17,897(ii) 34,816
Restricted cash........................................ 5,507 1,352(ii) 6,859
Management contracts................................... 47,846 79,195(iii) 127,041
Accounts receivable.................................... 13,109 5,471(ii) 18,580
Deferred financing costs............................... 3,117 -- 3,117
Goodwill............................................... 43,544 -- 43,544
Other assets........................................... 51,498 2,860(ii) 54,358
-------- -------- --------
$203,916 $106,775 $310,691
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Secured notes payable.................................. $114,302 $ 45,000(iii) $159,302
Accounts payable, accrued and other liabilities........ 56,773 27,580(ii) 84,353
Security deposits and deferred income.................. 334 --(ii) 334
Deferred tax liability................................. -- 20,000(iii) 20,000
-------- -------- --------
171,409 92,580 263,989
Common stock........................................... 2,061 747(iv) 2,808
Preferred stock........................................ 34,290 14,195(iii) 48,485
Retained earnings...................................... (3,844) -- (3,844)
Notes receivable on common stock purchases............. -- (747)(iv) (747)
-------- -------- --------
32,507 14,195 46,702
-------- -------- --------
$203,916 $106,775 $310,691
======== ======== ========
</TABLE>
- ---------------
(i) Represents adjustments related to the IFG Reorganization, whereby,
following the IFG Merger, the Partnership contributed or sold to the
combined Unconsolidated Subsidiaries certain assets and liabilities of IFG,
primarily related to the management operations owned by IFG. The
adjustments reflect the transfer of assets valued at the Partnership's new
basis resulting from the allocation of the purchase price of IFG. The
Partnership received non-voting preferred stock as consideration in
exchange for the net assets contributed. The net deferred tax liability is
assumed by the Unconsolidated Subsidiaries as it resulted from the assets
and liabilities transferred to the Unconsolidated Subsidiaries.
(ii) Represents certain assets and liabilities of IFG, primarily related to the
management operations of IFG, contributed or sold by the Partnership to the
Unconsolidated Subsidiaries, valued at the Partnership's new basis
resulting from the allocation of the purchase price of IFG.
(iii)Represents the transfer or sale of management contracts, the establishment
of an intercompany note, and the establishment of the related estimated net
deferred Federal and state tax liabilities at a combined rate of 40% for
the estimated difference between the book and tax basis of the net assets
of the Unconsolidated Subsidiaries. The primary component of the deferred
tax liability is the difference between the new basis of the property
management contracts, as a result of the allocation of the purchase price
of IFG, and the historical tax basis.
(iv) Represents the issuance of common stock to the common stockholders of the
Unconsolidated Subsidiaries in exchange for notes receivable, in order for
the common stockholders to maintain their respective ownership interest in
the Unconsolidated Subsidiaries.
P-9
<PAGE> 299
AIMCO PROPERTIES, L.P.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER)
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
COMPLETED
TRANSACTIONS
AND AMBASSADOR
PROBABLE NHP AMBASSADOR PURCHASE PRICE IFG AS
HISTORICAL(A) PURCHASES(B) TRANSACTIONS(C) HISTORICAL(D) ADJUSTMENTS(E) ADJUSTED(F)
------------- ------------ --------------- ------------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Rental and other property
revenues........................ $193,006 $120,337(I)
11,012(J) $ 6,660 $ 93,329 $ -- $ 6,912
Property operating expenses....... (76,168) (59,466)(I)
(4,860)(J) (2,941) (36,088) -- (3,307)
Owned property management
expense......................... (6,620) (4,327)(I)
(602)(J) (282) -- -- --
Depreciation...................... (37,741) (26,645)(I)
(2,172)(J) (1,414) (18,979) (5,997)(O) (966)
-------- -------- ------- -------- ------- --------
Income from property operations... 72,477 33,277 2,023 38,262 (5,997) 2,639
-------- -------- ------- -------- ------- --------
Management fees and other
income.......................... 13,937 -- 7,813 -- -- 94,330
Management and other expenses..... (9,910) -- (5,394) -- -- (57,615)
Corporate overhead allocation..... (588) -- -- -- -- --
Amortization...................... (1,401) -- (5,800) -- -- (16,768)
-------- -------- ------- -------- ------- --------
Income from service company
business........................ 2,038 -- (3,381) -- -- 19,947
Minority interest in service
company business................ (10) -- -- -- -- --
-------- -------- ------- -------- ------- --------
AIMCO's share of income from
service company business........ 2,028 -- (3,381) -- -- 19,947
-------- -------- ------- -------- ------- --------
General and administrative
expenses........................ (5,396) -- (1,025) (7,392) 7,392(P) (21,199)
Interest expense.................. (51,385) (3,451)(K)
(2,497)(L) (5,462) (26,987) (221)(Q) (9,035)
Interest income................... 8,676 -- 1,900 -- -- 10,967
Minority interest................. 1,008 458(M) 16 (851) 705(R) (12,871)
Equity in losses of unconsolidated
partnerships.................... (1,798) (122)(N) (8,542) 405 -- 12,515
Equity in earnings of
unconsolidated subsidiaries..... 4,636 -- 5,790 -- -- --
-------- -------- ------- -------- ------- --------
Income (loss) from operations..... 30,246 27,665 (8,681) 3,437 1,879 2,963
Income tax provision.............. -- -- -- -- -- 1,701
Gain on dispositions of
property........................ 2,720 (2,720) -- -- -- 80
-------- -------- ------- -------- ------- --------
Income (loss) before extraordinary
item............................ 32,966 24,945 (8,681) 3,437 1,879 4,744
Extraordinary item -- early
extinguishment of debt.......... (269) 269 -- -- -- --
-------- -------- ------- -------- ------- --------
Net income........................ 32,697 25,214 (8,681) 3,437 1,879 4,744
Income attributable to preferred
unitholders..................... 2,315 39,859 -- -- -- --
-------- -------- ------- -------- ------- --------
Income attributable to common
unitholders..................... $ 30,382 $(14,645) $(8,681) $ 3,437 $ 1,879 $ 4,744
======== ======== ======= ======== ======= ========
Basic earnings per OP unit........ $ 1.09
========
Diluted earnings per OP unit...... $ 1.08
========
Weighted average OP units
outstanding..................... 27,732
========
Weighted average OP units and
equivalents outstanding......... 28,113
========
<CAPTION>
IFG IFG
MERGER REORGANIZATION
ADJUSTMENTS(G) ADJUSTMENTS(H) PRO FORMA
-------------- -------------- ---------
<S> <C> <C> <C>
Rental and other property
revenues........................
$ -- $ -- $ 431,256
Property operating expenses.......
-- -- (182,830)
Owned property management
expense.........................
-- -- (11,831)
Depreciation......................
(2,350)(S) -- (96,264)
-------- -------- ---------
Income from property operations... (2,350) -- 140,331
-------- -------- ---------
Management fees and other
income.......................... -- (74,404)(X) 41,676
Management and other expenses..... -- 49,236(X) (23,683)
Corporate overhead allocation..... -- -- (588)
Amortization...................... (32,699)(T) 30,188(Y) (26,480)
-------- -------- ---------
Income from service company
business........................ (32,699) 5,020 (9,075)
Minority interest in service
company business................ -- -- (10)
-------- -------- ---------
AIMCO's share of income from
service company business........ (32,699) 5,020 (9,085)
-------- -------- ---------
General and administrative
expenses........................ -- 6,249(X) (21,371)
Interest expense..................
(14,750) -- (113,788)
Interest income................... -- 191(Z) 21,734(BB)
Minority interest................. 1,552(U) -- (9,983)
Equity in losses of unconsolidated
partnerships.................... (29,995)(V) -- (27,537)
Equity in earnings of
unconsolidated subsidiaries..... -- (4,578)(AA) 5,848(DD)
-------- -------- ---------
Income (loss) from operations..... (78,242) 6,882 (13,851)
Income tax provision.............. (1,701)(W) -- --
Gain on dispositions of
property........................ (80) -- --
-------- -------- ---------
Income (loss) before extraordinary
item............................ (80,023) 6,882 (13,851)
Extraordinary item -- early
extinguishment of debt.......... -- -- --
-------- -------- ---------
Net income........................ (80,023) 6,882 (13,851)
Income attributable to preferred
unitholders..................... -- -- 42,174(CC)
-------- -------- ---------
Income attributable to common
unitholders..................... $(80,023) $ 6,882 $ (56,025)(BB)
======== ======== =========
Basic earnings per OP unit........ $ (0.83)(BB)
=========
Diluted earnings per OP unit...... $ (0.83)(BB)
=========
Weighted average OP units
outstanding..................... 67,522
=========
Weighted average OP units and
equivalents outstanding......... 68,366
=========
</TABLE>
P-10
<PAGE> 300
- ---------------
(A) Represents the Partnership's audited consolidated results of operations
for the year ended December 31, 1997.
(B) Represents adjustments to reflect the following as if they had occurred
on January 1, 1997: (i) the 1997 Acquisitions; (ii) the 1997 Stock
Offerings; (iii) the 1997 Dispositions; (iv) the 1998 Stock Offerings;
(v) the 1998 Acquisitions; (vi) the Probable Purchases; (vii) the 1998
Dispositions; and (v) the Preferred Partnership Unit Offering.
(C) Represents adjustments to reflect the purchase of the NHP Real Estate
Companies, the NHP Merger, and the NHP Reorganization, as if the
transactions had taken place on January 1, 1997. These adjustments are
detailed, as follows:
<TABLE>
<CAPTION>
NHP
REAL ESTATE NHP NHP NHP NHP
PURCHASE(I) HISTORICAL(II) ADJUSTMENTS(III) REORGANIZATION(IV) TRANSACTIONS
----------- -------------- ---------------- ------------------ ------------
<S> <C> <C> <C> <C> <C>
Rental and other property
revenues................. $ 6,660(v) $ 16,842 $ -- $(16,842)(xvii) $ 6,660
Property operating
expenses................. (2,941)(v) (8,411) -- 8,411 (xvii) (2,941)
Owned property management
expense.................. (282)(v) (862) -- 862 (xvii) (282)
Depreciation............... (1,414)(vi) (2,527) (693)(xi) 3,220 (xvii) (1,414)
------- -------- ------- -------- -------
Income from property
operations............... 2,023 5,042 (693) (4,349) 2,023
------- -------- ------- -------- -------
Management fees and other
income................... 1,405(vii) 72,176 -- (65,768)(xviii) 7,813
Management and other
expenses................. (2,263)(viii) (35,267) -- 32,136 (xviii) (5,394)
Amortization............... -- (9,111) (4,432)(xii) 7,743 (xix) (5,800)
------- -------- ------- -------- -------
Income from service company
business................. (858) 27,798 (4,432) (25,889) (3,381)
------- -------- ------- -------- -------
General and administrative
expenses................. -- (16,266) 8,668 (xiii) 6,573 (xviii) (1,025)
Interest expense........... (5,082)(ix) (10,685) -- 10,305 (xx) (5,462)
Interest income............ 540(v) 1,963 -- (603)(xxi) 1,900
Minority interest.......... 16(v) -- -- -- 16
Equity in losses of
unconsolidated
partnerships............. (3,905)(x) -- (4,631)(xiv) (6) (8,542)
Equity in earnings of
unconsolidated
subsidiaries............. -- -- (4,636)(xv) 10,426 (xxii) 5,790
------- -------- ------- -------- -------
Income (loss) from
operations............... (7,266) 7,852 (5,724) (3,543) (8,681)
Income tax provision....... -- (3,502) 3,502 (xvi) -- --
------- -------- ------- -------- -------
Net income (loss).......... $(7,266) $ 4,350 $(2,222) $ (3,543) $(8,681)
======= ======== ======= ======== =======
</TABLE>
- ---------------
(i) Represents the adjustment to record activity from January 1, 1997 to
the date of acquisition, as if the acquisition of the NHP Real
Estate Companies had occurred on January 1, 1997. The historical
financial statements of the NHP Real Estate Companies consolidate
certain real estate partnerships in which they have an interest that
will be presented on the equity method by the Partnership as a
result of the NHP Real Estate Reorganization. In addition,
represents adjustments to record additional depreciation and
amortization related to the increased basis in the assets of the NHP
Real Estate Companies as a result of the allocation of the purchase
price of the NHP Real Estate Companies and additional interest
expense incurred in connection with borrowings incurred by the
Partnership to consummate the NHP Real Estate Acquisition.
(ii)Represents the unaudited consolidated results of operations of NHP
for the period from January 1, 1997 through December 8, 1997 (date
of the NHP Merger).
(iii)
Represents the following adjustments occurring as a result of the
NHP Merger: (i) the reduction in personnel costs, primarily
severance costs, pursuant to a restructuring plan;
P-11
<PAGE> 301
(ii) the incremental depreciation of the purchase price adjustment
related to real estate; (iii) the incremental amortization of the
purchase price adjustment related to the management contracts,
furniture, fixtures and equipment, and goodwill; (iv) the reversal
of equity in earnings of NHP during the pre-merger period when the
Partnership held a 47.62% interest in NHP; and (v) the amortization
of the increased basis in investments in real estate partnerships
based on the purchase price adjustment related to real estate and an
estimated average life of 20 years.
(iv)Represents adjustments related to the NHP Reorganization, whereby
the Partnership contributed or sold to the Unconsolidated
Subsidiaries and the Unconsolidated Partnership: (i) certain assets
and liabilities of NHP, primarily related to the management
operations and other businesses owned by NHP and (ii) 12 real estate
properties containing 2,905 apartment units. The adjustments
represent (i) the related revenues and expenses primarily related to
the management operations and other businesses owned by NHP and (ii)
the historical results of operations of such real estate
partnerships contributed, with additional depreciation and
amortization recorded related to the Partnership's new basis
resulting from the allocation of the combined purchase price of NHP
and the NHP Real Estate Companies.
(v) Represents adjustments to reflect the acquisition of the NHP Real
Estate Companies and the corresponding historical results of
operations as if they had occurred on January 1, 1997.
(vi)Represents incremental depreciation related to the consolidated real
estate assets purchased from the NHP Real Estate Companies.
Buildings and improvements are depreciated on the straight-line
method over a period of 30 years, and furniture and fixtures are
depreciated on the straight-line method over a period of 5 years.
(vii)
Represents the adjustment to record the revenues from ancillary
businesses purchased from the NHP Real Estate Companies as if the
acquisition had occurred on January 1, 1997.
(viii)
Represents $4,878 related to the adjustment to record the expenses
from ancillary businesses purchased from the NHP Real Estate
Companies as if the acquisition had occurred on January 1, 1997,
less $2,615 related to a reduction in personnel costs pursuant to a
restructuring plan, approved by the Company's senior management,
assuming that the acquisition of the NHP Real Estate Companies had
occurred on January 1, 1997 and that the restructuring plan was
completed on January 1, 1997. The restructuring plan specifically
identifies all significant actions to be taken to complete the
restructuring plan, including the reduction of personnel, job
functions, location and the date of completion.
(ix)Represents adjustments in the amount of $3,391 to reflect the
acquisition of the NHP Real Estate Companies and the corresponding
historical results of operations as if they had occurred on January
1, 1997, as well as the increase in interest expense in the amount
of $1,691 related to borrowings on the Partnership's credit
facilities of $55,807 to finance the NHP Real Estate Acquisition.
(x) Represents adjustments in the amount of $2,432 to reflect the
acquisition of the NHP Real Estate Companies and the corresponding
historical results of operations as if they had occurred on January
1, 1997, as well as amortization of $1,473 related to the increased
basis in investment in real estate partnerships, as a result of the
allocation of the purchase price of the NHP Real Estate Companies,
based on an estimated average life of 20 years.
(xi)Represents incremental depreciation related to the real estate
assets purchased from NHP. Buildings and improvements are
depreciated on the straight-line method over a period of 20 years,
and furniture and fixtures are depreciated on the straight-line
method over a period of 5 years.
(xii)
Represents incremental depreciation and amortization of the tangible
and intangible assets related to the property management and other
business operated by the Unconsolidated Subsidiaries, based on the
Partnership's new basis as adjusted by the allocation of the
combined purchase price of NHP including amortization of management
contracts of $3,782, depreciation of furniture, fixtures and
equipment of $2,018 and amortization of goodwill of
P-12
<PAGE> 302
$7,743, less NHP's historical depreciation and amortization of
$9,111. Management contracts are amortized using the straight-line
method over the weighted average life of the contracts estimated to
be approximately 15 years. Furniture, fixtures and equipment are
depreciated using the straight-line method over the estimated life
of 3 years. Goodwill is amortized using the straight-line method
over 20 years.
(xiii)
Represents a reduction in personnel costs, primarily severance
costs, pursuant to a restructuring plan, approved by the Company's
senior management, specifically identifying all significant actions
to be taken to complete the restructuring plan, assuming that the
NHP Merger had occurred on January 1, 1997 and that the
restructuring plan was completed on January 1, 1997.
(xiv)
Represents adjustment for amortization of the increased basis in
investments in real estate partnerships, as a result of the
allocation of the combined purchase price of NHP and the NHP Real
Estate Companies, based on an estimated average life of 20 years.
(xv)Represents the reversal of equity in earnings in NHP during the
pre-merger period when the Partnership held a 47.62% interest in
NHP, as a result of the Partnership's acquisition of 100% of the NHP
Common Stock.
(xvi)
Represents the reversal of NHP's income tax provision due to the
restructuring of the management business to the Unconsolidated
Subsidiaries.
(xvii)
Represents the contribution of NHP's 12 real estate properties
containing 2,905 apartment units to the Unconsolidated Partnership
pursuant to the NHP Reorganization.
(xviii)
Represents the historical income and expenses associated with
certain assets and liabilities of NHP that were contributed or sold
to the Unconsolidated Subsidiaries, primarily related to the
management operations and other businesses owned by NHP.
(xix)
Represents the amortization and depreciation of certain management
contracts and other assets of NHP, based on the Partnership's new
basis resulting from the allocation of the purchase price of NHP,
that will be contributed or sold to the Unconsolidated Subsidiaries,
primarily related to the management operations and other businesses
owned by NHP.
(xx)Represents interest expense of $6,020 related to the contribution of
NHP's 12 real estate properties containing 2,905 apartment units to
the Unconsolidated Partnership and interest expense of $4,285
related to the certain assets and liabilities that will be
contributed or sold to the Unconsolidated Subsidiaries pursuant to
the NHP Reorganization.
(xxi)
Represents the interest income of $5,000 earned on notes payable of
$50,000 to the Partnership issued as consideration for certain
assets and liabilities sold to the Unconsolidated Subsidiaries by
the Partnership, net of the elimination of the Partnership's share
of the related interest expense of $4,750 reflected in the equity in
earnings of the Unconsolidated Subsidiaries operating results,
offset by $853 in interest income primarily related to the
management operations and other businesses owned by NHP contributed
or sold to the Unconsolidated Subsidiaries pursuant to the NHP
Reorganization.
(xxii)
Represents the Partnership's equity in earnings of the
Unconsolidated Subsidiaries.
(D) Represents the audited historical statement of operations of Ambassador
for the year ended December 31, 1997. Certain reclassifications have been
made to Ambassador's historical statement of operations to conform to the
Partnership's Statement of Operations presentation. The Ambassador
historical statement of operations excludes extraordinary loss of $1,384
and a loss on sale of an interest rate cap of $509.
(E) Represents the following adjustments occurring as a result of the
Ambassador Merger: (i) the incremental depreciation of the purchase price
adjustment related to real estate; (ii) the reduction in personnel costs,
primarily severance costs, pursuant to a restructuring plan; (iii) the
reduction of interest expense resulting from the net reduction of debt;
and (iv) the elimination of the minority interest associated with
Jupiter-I, L.P.
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<PAGE> 303
(F) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the
IPT Merger, and the spin-off of Holdings as if these transactions had
occurred on January 1, 1997. These adjustments are detailed, as follows:
<TABLE>
<CAPTION>
IFG AMIT HOLDINGS IFG
HISTORICAL(I) MERGER(II) SPIN-OFF(III) AS ADJUSTED
------------- ---------- ------------- -----------
<S> <C> <C> <C> <C>
Rental and other property
revenues....................... $ 6,646 $ 266 $ -- $ 6,912
Property operating expenses...... (3,251) (56) -- (3,307)
Depreciation..................... (966) -- -- (966)
--------- ------- --------- --------
Income from property
operations..................... 2,429 210 -- 2,639
--------- ------- --------- --------
Management fees and other
income......................... 389,626 -- (295,296) 94,330
Management and other expenses.... (315,653) -- 258,038 (57,615)
Amortization..................... (31,709) (303) 15,244 (16,768)
--------- ------- --------- --------
Income from service company
business....................... 42,264 (303) (22,014) 19,947
--------- ------- --------- --------
General and administrative
expenses....................... (20,435) (1,351) 587 (21,199)
Interest expense................. (9,353) -- 318 (9,035)
Interest income.................. 4,571 6,853 (457) 10,967
Minority interest................ (12,448) (382) (41) (12,871)
Equity in income (losses) of
unconsolidated partnership..... 10,027 2,639 (151) 12,515
--------- ------- --------- --------
Income (loss) from operations.... 17,055 7,666 (21,758) 2,963
Income tax provision............. (6,822) (180) 8,703 1,701
Gain on sale of property......... -- 80 -- 80
--------- ------- --------- --------
Net income (loss)................ 10,233 7,566 (13,055) 4,744
========= ======= ========= ========
</TABLE>
- ---------------
(i) Represents the audited consolidated results of operations of IFG for
the year ended December 31, 1997, as reported in IFG's Annual Report
on Form 10-K. Certain reclassifications have been made to IFG's
historical statement of operations to conform to the Partnership's
statement of operations presentation.
(ii)Represents the historical statement of operations of AMIT, as well
as pro forma adjustments related to the AMIT Merger. The AMIT Merger
closed prior to the IFG Merger.
(iii)
Represents the distribution of two shares of Holdings common stock
for each three shares of IFG common stock to holders of IFG common
stock.
(G) Represents the following adjustments occurring as a result of the IFG
Merger and the IPT Merger: (i) the incremental depreciation of the
purchase price adjustment related to consolidated real estate and
investments in real estate partnerships; (ii) the amortization of
goodwill and property management contracts resulting from the IFG Merger;
(iii) the increase in interest expense resulting from the net increase in
debt; and (iv) the elimination of the income tax provision.
(H) Represents adjustments related to the IFG Reorganization, whereby,
following the IFG Merger, the Partnership contributed or sold to the
Unconsolidated Subsidiaries certain assets and liabilities of IFG,
primarily management contracts and related working capital assets and
liabilities related to IFG's third party management operations. The
adjustments reflect the related revenues and expenses primarily related
to the management operations owned by IFG, with additional amortization
recorded related to the Partnership's new basis resulting from the
allocation of the purchase price of IFG.
(I) Represents adjustments to reflect the 1997 Property Acquisitions and the
1998 Acquisitions, less the 1997 Dispositions and the 1998 Dispositions
as if they had occurred on January 1, 1997. These pro
P-14
<PAGE> 304
forma operating results are based on historical results of the
properties, except for depreciation, which is based on the Partnership's
investment in the properties.
These adjustments are as follows:
<TABLE>
<CAPTION>
1997 PROPERTY 1997 1998 1998
ACQUISITIONS DISPOSITIONS ACQUISITIONS DISPOSITIONS TOTAL
------------- ------------ ------------ ------------ --------
<S> <C> <C> <C> <C> <C>
Rental and other
property
revenues........... $ 88,589 $(4,081) $ 39,132 $(3,303) $120,337
Property operating
expense............ (44,109) 1,944 (18,655) 1,354 (59,466)
Owned property
management
expense............ (3,233) 133 (1,349) 122 (4,327)
Depreciation......... (16,839) 452 (10,946) 688 (26,645)
</TABLE>
(J) Represents adjustments to reflect the Probable Purchases as if they had
occurred on January 1, 1997. These pro forma operating results are based
on historical results of the properties, except for depreciation, which
is based on the Partnership's investment in the properties.
(K) Represents adjustments to interest expense for the following:
<TABLE>
<S> <C>
Borrowings on the Partnership's credit facilities and other
loans and mortgages assumed in connection with the 1997
Property Acquisitions..................................... $(29,490)
Repayments on the Partnership's credit facilities and other
indebtedness with proceeds from the 1997 Dispositions and
the 1997 Stock Offerings.................................. 19,568
Repayments on the Partnership's credit facilities with
proceeds from a dividend received from one of the
Unconsolidated Subsidiaries............................... 1,889
Borrowings on the Partnership's credit facilities and other
loans and mortgages assumed in connection with the 1998
Acquisitions.............................................. (15,994)
Repayments on the Partnership's credit facilities and other
indebtedness with proceeds from the 1998 Dispositions and
the 1998 Stock Offerings.................................. 20,113
Repayments on AIMCO's credit facilities and other
indebtedness with proceeds from the Preferred Partnership
Unit Offering............................................. 463
--------
$ (3,451)
========
</TABLE>
(L) Represents adjustments to interest expense related to the assumption of
mortgage debt in connection with the Probable Purchases.
(M) Represents (i) loss of $181 related to limited partners in consolidated
partnerships acquired in connection with the 1997 Property Acquisitions
and the 1998 Property Acquisitions and (ii) income of $502 allocable to
the Partnership Preferred Units.
(N) Represents the reduction in the Partnership's earnings in unconsolidated
partnerships as a result of the consolidation of additional partnerships
resulting from additional ownership acquired through tender offers.
(O) 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.
P-15
<PAGE> 305
(P) Decrease results from identified historical costs of certain items which
will be eliminated or reduced as a result of the Ambassador Merger, as
follows:
<TABLE>
<S> <C>
Duplication of public company expenses...................... $ 724
Reduction in salaries and benefits.......................... 4,197
Merger related costs........................................ 524
Other....................................................... 1,947
------
$7,392
======
</TABLE>
The reduction in salaries and benefits is pursuant to a restructuring
plan, approved by the Company's senior management, assuming that the
Ambassador Merger had occurred on January 1, 1997 and that the
restructuring plan was completed on January 1, 1997. The restructuring
plan specifically identifies all significant actions to be taken to
complete the restructuring plan, including the reduction of personnel,
job functions, location and date of completion.
(Q) Represents the decrease in interest expense of $3,612 related to the
repayment of the Ambassador revolving lines of credit upon consummation
of the Ambassador Merger, offset by an increase in interest expense of
$3,833 related to borrowings under the Partnership's credit facilities.
(R) Represents elimination of minority interest in Jupiter-I, L.P. resulting
from the redemption of limited partnership interests not owned by
Ambassador in connection with the Ambassador Merger.
(S) Represents incremental depreciation related to the consolidated real
estate assets purchased in connection with the IFG Merger and IPT Merger,
based on the Partnership's new basis resulting from the allocation of the
purchase price of IFG and IPT. Buildings and improvements are depreciated
on the straight-line method over a period of 20 years, and furniture and
fixtures are depreciated on the straight-line method over a period of 5
years.
(T) Represents incremental depreciation and amortization of the tangible and
intangible assets related to the property management business of IFG,
based on the Partnership's new basis resulting from the allocation of the
purchase price of IFG, including amortization of property management
contracts of $38,885, amortization of goodwill of $6,526, and
depreciation of furniture, fixtures, and equipment of $3,753, less IFG's
historical depreciation and amortization of $16,465. Property management
contracts are amortized using the straight-line method over a period of
three years. Furniture, fixtures, and equipment are depreciated using the
straight-line method over a period of three years. Goodwill is amortized
using the straight-line method over 20 years.
(U) Represents elimination of minority interest of IPT resulting from the IPT
merger.
(V) Represents amortization related to the increased basis in investment in
real estate partnerships, as a result of the allocation of the purchase
price of IFG and IPT, based on an estimated average life of 20 years, and
based on the Partnership's new basis resulting from the allocation of the
purchase price of IFG and IPT.
(W) Represents the reversal of IFG's income tax provision.
(X) Represents the historical income and expenses associated with certain
assets and liabilities of IFG that were contributed or sold to the
Unconsolidated Subsidiaries, primarily related to the management
operations of IFG.
(Y) Represents the depreciation and amortization of certain management
contracts and furniture, fixtures, and equipment that were contributed or
sold to the Unconsolidated Subsidiaries, primarily related to the
management operations of IFG, based on the Partnership's new basis
resulting from the allocation of the purchase price of IFG.
(Z) Represents interest income of $3,825 earned on notes payable of $45,000
to the Partnership issued as consideration for certain assets and
liabilities sold to the Unconsolidated Subsidiaries by the Partnership,
net of the elimination of the Partnership's share of the related interest
expense of $3,634 reflected on the equity in earnings of the
Unconsolidated Subsidiaries.
(AA) Represents the Partnership's equity in earnings of the Unconsolidated
Subsidiaries.
P-16
<PAGE> 306
(BB) The following table presents the net impact to pro forma net loss
applicable to holders of OP Units and net loss per OP Units assuming the
interest rate per annum increases by 0.25%:
<TABLE>
<S> <C>
Increase in interest expense................................ $ 938
========
Net income.................................................. $(14,789)
========
Net loss attributable to OP unitholders..................... $(56,963)
========
Basic loss per OP unit...................................... $ (0.84)
========
Diluted loss per OP unit.................................... $ (0.84)
========
</TABLE>
(CC) Represents the net income attributable to holders of the Class B
Preferred Units, the Class C Preferred Units, the Class D Preferred
Units, the Class G Preferred Units, the Class H Preferred Units and the
Class J Preferred Units as if these Preferred Units had been issued as of
January 1, 1997.
(DD) Represents the Partnership's equity in earnings in the Unconsolidated
Subsidiaries of $(2,536), plus the elimination of intercompany interest
expense of $8,384. The combined Pro Forma Statement of Operations of the
Unconsolidated Subsidiaries for the year ended December 31, 1997 is
presented below, which represents the effects of the Ambassador Merger,
the NHP Merger, the NHP Reorganization, the IFG Merger, and the IFG
Reorganization as if these transactions had occurred as of January 1,
1997.
P-17
<PAGE> 307
UNCONSOLIDATED SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER)
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
REORGANIZATION IFG
HISTORICAL(I) ADJUSTMENTS(II) REORGANIZATION(III) PRO FORMA
------------- --------------- ------------------- ---------
<S> <C> <C> <C> <C>
Rental and other property revenues...... $ 6,194 $ 6,371(iv) $ -- $ 12,565
Property operating expenses............. (3,355) (3,531)(iv) -- (6,886)
Owned property management expense....... (147) (478)(iv) -- (625)
Depreciation expense.................... (1,038) (767)(iv) -- (1,805)
-------- -------- -------- --------
Income from property operations......... 1,654 1,595 -- 3,249
-------- -------- -------- --------
Management fees and other income........ 23,776 41,992(v) 74,404(x) 140,172
Management and other expenses........... (11,733) (20,403)(v) (49,236)(x) (81,372)
Amortization............................ (3,726) (4,017)(v) (30,188)(xi) (37,931)
-------- -------- -------- --------
Income from service company............. 8,317 17,572 (5,020) 20,869
General and administrative expense...... -- (6,573)(v) (6,249)(x) (12,822)
Interest expense........................ (6,058) (5,849)(vi) (3,825)(xii) (15,732)
Interest income......................... 1,001 (148)(v) -- 853
Minority interest....................... (2,819) 2,198(viii) -- (621)
Equity in losses of unconsolidated
partnerships.......................... (1,028) 1,028(iv) -- --
Equity in earnings of Unconsolidated
Subsidiaries.......................... 2,943 (2,943)(vii) -- --
-------- -------- -------- --------
Income (loss) from operations........... 4,010 6,880 (15,094) (4,204)
Income tax provision.................... (1,902) (3,013)(ix) 6,450(xiii) 1,535
-------- -------- -------- --------
Net income (loss)....................... $ 2,108 $ 3,867 $ (8,644) $ (2,669)
======== ======== ======== ========
Income attributable to preferred
unitholders........................... $ 2,198 $ 3,478 $ (8,212) $ (2,536)
======== ======== ======== ========
Income (loss) attributable to common
unitholders........................... $ (90) $ 389 $ (432) $ (133)
======== ======== ======== ========
</TABLE>
- ---------------
(i) Represents the historical results of operations of the Unconsolidated
Subsidiaries for the year ended December 31, 1997.
(ii) Represents adjustments related to the NHP Reorganization, which includes
the sale or contribution of 14 properties containing 2,725 apartment units
from the unconsolidated partnerships to the Unconsolidated Subsidiaries,
as well as the sale or contribution of 12 properties containing 2,905
apartment units from the Unconsolidated Subsidiaries to the Unconsolidated
Partnership.
(iii) Represents adjustments related to the IFG Reorganization, whereby,
following the IFG Merger, the Partnership contributed or sold to the
Unconsolidated Subsidiaries certain assets and liabilities of IFG,
primarily related to the management operations owned by IFG. The
adjustments reflect the related revenues and expenses primarily related to
the management operations owned by IFG, with additional amortization
recorded related to the Partnership's new basis resulting from the
allocation of the purchase price of IFG.
(iv) Represents adjustments for the historical results of operations of the 14
real estate properties contributed or sold to the Unconsolidated
Subsidiaries, offset by the historical results of operations of the 12
real estate properties contributed or sold to the Unconsolidated
Partnership, with additional depreciation recorded related to the
Partnership's new basis resulting from the allocation of purchase price of
NHP and the NHP Real Estate Companies.
P-18
<PAGE> 308
(v) Represents adjustments to reflect income and expenses associated with
certain assets and liabilities of NHP contributed or sold to the
Unconsolidated Subsidiaries.
(vi) Represents adjustments of $6,058 to reverse the historical interest
expense of the Unconsolidated Subsidiaries, which resulted from its
original purchase of NHP Common Stock, offset by $2,622 related to the
contribution or sale of the 14 real estate properties, $4,285 related to
assets and liabilities transferred from the Partnership to the
Unconsolidated Subsidiaries and $5,000 related to a note payable to the
Partnership.
(vii) Represents the reversal of the historical equity in earnings of NHP for
the period in which NHP was not consolidated by the Unconsolidated
Subsidiaries.
(viii)Represents the minority interest in the operations of the 14 real estate
properties.
(ix) Represents the estimated Federal and state tax provisions, which are
calculated on the pro forma operating results of the Unconsolidated
Subsidiaries, excluding amortization of goodwill which is not deductible
for tax purposes.
(x) Represents the historical income and expenses associated with certain
assets and liabilities of IFG that were contributed or sold to the
Unconsolidated Subsidiaries, primarily related to the management
operations of IFG.
(xi) Represents the depreciation and amortization of certain management
contracts and furniture, fixtures, and equipment that were contributed or
sold to the Unconsolidated Subsidiaries, primarily related to the
management operations of IFG, based on the Partnership's new basis
resulting from the allocation of the purchase price of IFG.
(xii) Represents adjustment for interest expense related to a note payable to
the Partnership.
(xiii)Represents the estimated Federal and state tax provisions, which are
calculated on the pro forma operating results of the Unconsolidated
Subsidiaries, excluding amortization of goodwill, which is not deductible
for tax purposes.
P-19
<PAGE> 309
AIMCO PROPERTIES, L.P.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
COMPLETED
TRANSACTIONS AMBASSADOR
AND PROBABLE AMBASSADOR PURCHASE PRICE IFG AS
HISTORICAL(A) PURCHASES(B) HISTORICAL(C) ADJUSTMENTS(D) ADJUSTED(E)
------------- ------------ ------------- -------------- -----------
<S> <C> <C> <C> <C> <C>
Rental and other property revenues............. $ 265,700 $ 19,603(H) $ $ $
8,398(I) 35,480 -- 8,126
Property operating expenses.................... (101,600) (9,009)(H)
(3,745)(I) (14,912) -- (2,585)
Owned property management expense.............. (7,746) (728)(H)
(459)(I) -- -- --
Depreciation................................... (59,792) (4,886)(H)
(2,624)(I) (7,270) (1,420)(M) (904)
--------- -------- -------- ------- --------
Income from property operations................ 96,562 6,550 13,298 (1,420) 4,637
--------- -------- -------- ------- --------
Management fees and other income............... 13,968 -- -- -- 71,155
Management and other expenses.................. (8,101) -- -- -- (41,477)
Corporate overhead allocation.................. (196) -- -- -- --
Amortization................................... (3) -- -- -- (13,986)
--------- -------- -------- ------- --------
Income from service company business........... 5,668 -- -- -- 15,692
--------- -------- -------- ------- --------
General and administrative expenses............ (7,444) -- (5,278) 5,278(N) (61,386)
Interest expense............................... (56,756) 1,975(J)
(2,469)(K) (10,079) 145(O) (24,871)
Interest income................................ 18,244 (1) -- -- 22,501
Minority interest.............................. (1,052) 160(L) (252) 252(P) (14,159)
Equity in losses of unconsolidated
partnerships................................. (5,078) -- (71) -- 13,492
Equity in earnings of unconsolidated
subsidiaries................................. 8,413 -- -- -- --
Amortization of goodwill....................... (5,071) -- -- -- --
--------- -------- -------- ------- --------
Income (loss) from operations.................. 53,486 6,215 (2,382) 4,255 (44,094)
Income tax provision........................... -- -- -- -- 1,180
Gain on dispositions of property............... 2,783 (2,783) -- -- 6,576
--------- -------- -------- ------- --------
Net income..................................... 56,269 3,432 (2,382) 4,255 (36,338)
Income attributable to preferred unitholders... 16,320 16,094 -- -- --
--------- -------- -------- ------- --------
Income (loss) attributable to common
unitholders.................................. $ 39,949 $(12,662) $ (2,382) $ 4,255 $(36,338)
========= ======== ======== ======= ========
Basic earnings (loss) per OP Unit.............. $ 0.80
=========
Diluted earnings (loss) per OP Unit............ $ 0.79
=========
Weighted average OP Units outstanding.......... 50,420
=========
Weighted average OP Unit and equivalents
outstanding.................................. 50,544
=========
<CAPTION>
IFG IFG
MERGER REORGANIZATION
ADJUSTMENTS(F) ADJUSTMENTS(G) PRO FORMA
-------------- -------------- ---------
<S> <C> <C> <C>
Rental and other property revenues............. $ $ $
-- -- 337,307
Property operating expenses....................
-- -- (131,851)
Owned property management expense..............
-- -- (8,933)
Depreciation...................................
(1,583)(Q) -- (78,479)
-------- -------- ---------
Income from property operations................ (1,583) -- 118,044
-------- -------- ---------
Management fees and other income............... -- (56,211)(W) 28,912
Management and other expenses.................. -- 35,192(W) (14,386)
Corporate overhead allocation.................. -- -- (196)
Amortization................................... (23,895)(R) 22,641(X) (15,243)
-------- -------- ---------
Income from service company business........... (23,895) 1,622 (913)
-------- -------- ---------
General and administrative expenses............ 45,823(S) 14,375(W) (8,632)
Interest expense...............................
7,045 -- (85,010)(AA)
Interest income................................ -- 143(Y) 40,887
Minority interest.............................. 6,622(T) -- (8,429)
Equity in losses of unconsolidated
partnerships................................. (18,577)(U) -- (10,234)
Equity in earnings of unconsolidated
subsidiaries................................. -- (7,562)(Z) 851(CC)
Amortization of goodwill....................... -- -- (5,071)
-------- -------- ---------
Income (loss) from operations.................. 15,435 8,578 41,493
Income tax provision........................... (1,180)(V) -- --
Gain on dispositions of property............... (6,576) -- --
-------- -------- ---------
Net income..................................... 7,679 8,578 41,493
Income attributable to preferred unitholders... -- -- 32,414(BB)
-------- -------- ---------
Income (loss) attributable to common
unitholders.................................. $ 7,679 $ 8,578 $ 9,079(AA)
======== ======== =========
Basic earnings (loss) per OP Unit.............. $ 0.13(AA)
=========
Diluted earnings (loss) per OP Unit............ $ 0.13(AA)
=========
Weighted average OP Units outstanding.......... 68,554
=========
Weighted average OP Unit and equivalents
outstanding.................................. 69,218
=========
</TABLE>
P-20
<PAGE> 310
- ---------------
(A) Represents the Partnership's unaudited consolidated results of operations
for the nine months ended September 30, 1998.
(B) Represents adjustments to reflect the following as if they had occurred
on January 1, 1998: (i) the 1998 Stock Offerings; (ii) the 1998
Acquisitions; (iii) the Probable Purchases; (iv) the 1998 Dispositions;
and (v) the Preferred Partnership Unit Offering.
(C) Represents the unaudited historical statement of operations of Ambassador
for the four months ended April 30, 1998. Certain reclassifications have
been made to Ambassador's historical Statement of Operations to conform
to the Partnership's Statement of Operations presentation.
(D) Represents the following adjustments occurring as a result of the
Ambassador Merger: (i) the incremental depreciation of the purchase price
adjustment related to real estate; (ii) the reduction in personnel costs,
primarily severance costs, pursuant to a restructuring plan; (iii) the
reduction of interest expense resulting from the net reduction of debt;
and (iv) the elimination of the minority interest associated with
Jupiter-I, L.P.
(E) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the
IPT Merger and the spin-off of the common stock of Holdings as if these
transactions had occurred on January 1, 1998. These adjustments are
detailed, as follows:
<TABLE>
<CAPTION>
HOLDINGS
IFG AMIT SPIN- IFG
HISTORICAL(I) MERGER(II) OFF(III) AS ADJUSTED
------------- ---------- ------------- -----------
<S> <C> <C> <C> <C>
Rental and other property revenues...... $ 7,566 $ 560 $ -- $ 8,126
Property operating expenses............. (2,585) -- -- (2,585)
Depreciation............................ (904) -- -- (904)
--------- ------ --------- --------
Income from property operations......... 4,077 560 -- 4,637
--------- ------ --------- --------
Management fees and other income........ 311,475 -- (240,320) 71,155
Management and other expenses........... (252,295) -- 210,818 (41,477)
Amortization............................ (26,781) (48) 12,843 (13,986)
--------- ------ --------- --------
Income from service company business.... 32,399 (48) (16,659) 15,692
--------- ------ --------- --------
General and administrative expenses..... (66,272) (675) 5,561 (61,386)
Interest expense........................ (24,164) -- (707) (24,871)
Interest income......................... 18,817 4,193 (509) 22,501
Minority interest....................... (14,159) -- -- (14,159)
Equity in losses of unconsolidated
partnerships.......................... 12,169 1,323 13,492
--------- ------ --------- --------
Income (loss) from operations........... (37,133) 4,030 (10,991) (44,094)
Income tax provision.................... (4,772) -- 5,952 1,180
Gain on disposition of property......... 5,888 688 -- 6,576
--------- ------ --------- --------
Item income (loss)...................... $ (36,017) $4,718 $ (5,039) $(36,338)
========= ====== ========= ========
</TABLE>
----------------------
(i)
Represents the unaudited consolidated results of operations of IFG for
the nine months ended September 30, 1998.
Certain reclassifications have been made to IFG's historical statement
of operations to conform to the Partnership's statement of operations
presentation.
(ii)
Represents the historical statement of operations of AMIT, as well as
pro forma adjustments related to the AMIT Merger. The AMIT Merger
closed prior to the IFG Merger.
(iii)
Represents the distribution of two shares of Holdings common stock for
each three shares of IFG common stock to holders of IFG common stock.
(F) Represents the following adjustments occurring as a result of the IFG
Merger: (i) the incremental depreciation of the purchase price adjustment
related to consolidated real estate and investments in real estate
partnerships; (ii) the amortization of goodwill and property management
contracts
P-21
<PAGE> 311
resulting from the IFG Merger; (iii) the increase in interest expense
resulting from the net increase in debt; and (iv) the elimination of the
income tax provision.
(G) Represents adjustments related to the IFG Reorganization, whereby,
following the IFG Merger, the Partnership contributed or sold to the
combined Unconsolidated Subsidiaries certain assets and liabilities of
IFG, primarily management contracts and related working capital assets
and liabilities related to IFG's third party management operations. The
adjustments reflect the related revenues and expenses primarily related
to the management operations owned by IFG, with additional amortization
recorded related to the Partnership's new basis resulting from the
allocation of the purchase price of IFG.
(H) Represents adjustments to reflect the 1998 Acquisitions, less the 1998
Dispositions as if they had occurred on January 1, 1998. These pro forma
operating results are based on historical results of the properties,
except for depreciation, which is based on the Partnership's investment
in the properties.
These adjustments are as follows:
<TABLE>
<CAPTION>
1998 1998
ACQUISITIONS DISPOSITIONS TOTAL
------------ ------------ -------
<S> <C> <C> <C>
Rental and other property revenues......... $20,554 $(951) $19,603
Property operating expense................. (9,385) 376 (9,009)
Owned property management expense.......... (765) 37 (728)
Depreciation............................... (4,979) 93 (4,886)
</TABLE>
(I) Represents adjustments to reflect the Probable Purchases as if they had
occurred on January 1, 1998. These pro forma operating results are based
on historical results of the properties, except for depreciation, which
is based on the Partnership's investment in the properties.
(J) Represents adjustments to interest expense for the following:
<TABLE>
<S> <C>
Borrowings on the Partnership's credit facilities and
other loans and mortgages assumed in connection with
the 1998 Acquisitions.................................. $(8,698)
Repayments on the Partnership's credit facilities and
other indebtedness with proceeds from the 1998
Dispositions and the 1998 Stock
Offerings.............................................. 10,326
Repayments on AIMCO's credit facilities and other
indebtedness with proceeds from the Preferred
Partnership Unit Offering.............................. 347
-------
$ 1,975
=======
</TABLE>
(K) Represents adjustments to interest expense related to the assumption of
mortgage debt in connection with the probable purchases.
(L) Represents (i) loss of $537 related to limited partners in consolidated
partnerships acquired in connection with the 1998 Acquisitions and (ii)
income of $377 allocable to the Partnership Preferred Units.
(M) 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.
(N) Decrease results from identified historical costs of certain items which
will be eliminated or reduced as a result of the Ambassador Merger, as
follows:
<TABLE>
<S> <C>
Duplication of public company expenses.................... $ 355
Reduction in salaries and benefits........................ 2,482
Merger related costs...................................... 1,212
Other..................................................... 1,229
------
$5,278
======
</TABLE>
P-22
<PAGE> 312
The reduction in salaries and benefits is pursuant to a restructuring
plan, approved by the Company's senior management, assuming that the
Ambassador Merger had occurred on January 1, 1998 and that the
restructuring plan was completed on January 1, 1998. The restructuring
plan specifically identifies all significant actions to be taken to
complete the restructuring plan, including the reduction of personnel,
job functions, location and date of completion.
(O) Represents the decrease in interest expense of $1,480 related to the
repayment of the Ambassador revolving lines of credit upon consummation
of the Ambassador Merger, offset by an increase in interest expense of
$1,335 related to borrowings under the Partnership's line of credit.
(P) Represents elimination of minority interest in Jupiter-I, L.P. resulting
from the redemption of limited partnership interests not owned by
Ambassador in connection with the Ambassador Merger.
(Q) Represents incremental depreciation related to the consolidated real
estate assets purchased in connection with the IFG Merger and IPT Merger,
based on the Partnership's new basis resulting from the allocation of the
purchase price of IFG and IPT. Buildings and improvements are depreciated
on the straight-line method over a period of 20 years, and furniture and
fixtures are depreciated on the straight-line method over a period of 5
years.
(R) Represents incremental depreciation and amortization of the tangible and
intangible assets related to the property management business of IFG,
based on the Partnership's new basis resulting from the allocation of the
purchase price of IFG, including amortization of property management
contracts of $30,096, amortization of goodwill of $4,895, and
depreciation of furniture, fixtures, and equipment of $2,842, less IFG's
historical depreciation and amortization of $13,938. Property management
contracts are amortized using the straight-line method over a period of
three years. Furniture, fixtures, and equipment are depreciated using the
straight-line method over a period of three years. Goodwill is amortized
using the straight-line method over 20 years.
(S) Represents the elimination of merger related expenses recorded by IFG
during the nine months ended September 30, 1998. In connection with the
IFG Merger, certain IFG executives will receive one-time lump-sum
payments in connection with the termination of their employment and
option agreements. The total of these lump sum payments is estimated to
be approximately $50,000.
(T) Represents elimination of minority interest in IPT resulting from the IPT
merger.
(U) Represents amortization related to the increased basis in investment in
real estate partnerships, as a result of the allocation of the purchase
price of IFG and IPT, based on an estimated average life of 20 years, and
based on the Partnership's new basis resulting from the allocation of the
purchase price of IFG and IPT.
(V) Represents the reversal of IFG's income tax provision.
(W) Represents the historical income and expenses associated with certain
assets and liabilities of IFG that were contributed or sold to the
Unconsolidated Subsidiaries, primarily related to the management
operations of IFG.
(X) Represents the depreciation and amortization of certain management
contracts and furniture, fixtures, and equipment that were contributed or
sold to the Unconsolidated Subsidiaries, primarily related to the
management operations of IFG, based on the Partnership's new basis
resulting from the allocation of the purchase price of IFG.
(Y) Represents interest income of $2,861 earned on notes payable of $45,000
to the Partnership issued as consideration for certain assets and
liabilities sold to the Unconsolidated Subsidiaries of the Partnership,
net of the elimination of the Partnership's share of the related interest
expense of $2,718 reflected in the equity in earnings of the
Unconsolidated Subsidiaries.
(Z) Represents the Partnership's equity in earnings of the Unconsolidated
Subsidiaries.
P-23
<PAGE> 313
(AA) The following table presents the net impact to pro forma net income
applicable to holders of shares 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........................................ $ 702
=======
Net income.................................................. $40,791
=======
Net income attributable to OP Unitholders................... $ 8,377
=======
Basic loss per OP Unit...................................... $ 0.12
=======
Diluted loss per OP Unit.................................... $ 0.12
=======
</TABLE>
(BB) Represents the net income attributable to holders of the Class B
Preferred Units, the Class C Preferred Units, the Class D Preferred Units
the Class G Preferred Units, the Class H Preferred Units and the Class J
Preferred Units as if these stock offerings had occurred as of January 1,
1997.
(CC) Represents the Partnership's equity in earnings in the Unconsolidated
Subsidiaries of $(1,867) plus the elimination of intercompany interest of
$2,718. The combined Pro Forma Statement of Operations of the
Unconsolidated Subsidiaries for the nine months ended September 30, 1998
is presented below, which represents the effects of the Ambassador
Merger, the IFG Merger and the IFG Reorganization as if these
transactions had occurred as of January 1, 1997.
P-24
<PAGE> 314
UNCONSOLIDATED SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
IFG
HISTORICAL(I) REORGANIZATION(II) PRO FORMA
------------- ------------------ ---------
<S> <C> <C> <C>
Rental and other property revenues................... $ 9,910 $ -- $ 9,910
Property operating expense........................... (5,139) -- (5,139)
Owned property management expense.................... (345) -- (345)
Depreciation expense................................. (1,026) -- (1,026)
-------- -------- --------
Income from property operations...................... 3,400 -- 3,400
-------- -------- --------
Management fees and other income..................... 57,665 56,211(iii) 113,876
Management and other expenses........................ (36,221) (35,192)(iii) (71,413)
Amortization......................................... (2,111) (22,641)(iv) (24,752)
-------- -------- --------
Income from service company.......................... 19,333 (1,622) 17,711
General and administrative expense................... -- (14,375)(iii) (14,375)
Interest expense..................................... (6,931) (2,861)(v) (9,792)
Interest income...................................... 617 -- 617
Minority interest.................................... (526) -- (526)
-------- -------- --------
Income (loss) from operations........................ 15,893 (18,858) (2,965)
Income tax provision................................. (7,037) 8,037(vi) 1,000
-------- -------- --------
Net income (loss).................................... $ 8,856 $(10,821) $ (1,965)
======== ======== ========
Income (loss) attributable to preferred
stockholders....................................... $ 8,413 $(10,280) $ (1,867)
======== ======== ========
Income (loss) attributable to common stockholders.... $ 443 $ (541) $ (98)
======== ======== ========
</TABLE>
- ---------------
(i) Represents the Unconsolidated Subsidiaries historical consolidated results
of operations.
(ii) Represents adjustments related to the IFG Reorganization, whereby,
following the IFG Merger, the Partnership contributed or sold to the
combined Unconsolidated Subsidiaries certain assets and liabilities of IFG,
primarily related to the management operations owned by IFG. The
adjustments reflect the related revenues and expenses primarily related to
the management operations owned by IFG, with additional amortization
recorded related to the Partnership's new basis resulting from the
allocation of the purchase price of IFG.
(iii)Represents the historical income and expenses associated with certain
assets and liabilities of IFG that were contributed or sold to the
Unconsolidated Subsidiaries, primarily related to the management operations
of IFG.
(iv) Represents the depreciation and amortization of certain management
contracts and furniture, fixtures, and equipment contributed or sold to the
Unconsolidated Subsidiaries, primarily related to the management operations
of IFG, based on the Partnership's new basis resulting from the allocation
of the purchase price of IFG.
(v) Represents adjustment for interest expense related to a note payable to the
Partnership.
(vi) Represents the estimated Federal and state tax provisions, which are
calculated on the pro forma operating results of the Unconsolidated
Subsidiaries, excluding amortization of goodwill, which is not deductible
for tax purposes.
P-25
<PAGE> 315
AIMCO PROPERTIES, L.P.
PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (INSIGNIA MERGER)
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMPLETED
TRANSACTIONS AMBASSADOR IFG
AND PROBABLE NHP AMBASSADOR PURCHASE PRICE AS
HISTORICAL(A) PURCHASES(B) TRANSACTIONS(C) HISTORICAL(D) ADJUSTMENTS(E) ADJUSTED(F)
------------- ------------ --------------- ------------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net Income (loss)................ $ 32,697 $ 25,214 $ (8,681) $ 3,437 $ 1,879 $ 4,744
Adjustments to reconcile net
income (loss) to net cash
provided by (used in) operating
activities:
Depreciation and
amortization.................. 43,520 28,817 7,354 20,372 5,997 17,248
Gain on investments............ -- -- (12) -- -- --
(Gain) loss on disposition of
properties.................... (2,720) 2,720 (3,882) -- -- (80)
Minority interests............. (1,008) (458) (16) 851 (705) 12,871
Equity in earnings of
unconsolidated partnerships... 1,798 122 8,542 (405) -- (12,515)
Equity in earnings of
unconsolidated subsidiaries... (4,636) -- (5,790) -- -- --
Extraordinary (gain) loss on
early extinguishment of
debt.......................... 269 (269) -- -- -- (5,366)
Changes in operating assets and
operating liabilities......... 3,112 -- 5,314 (3,523) -- (4,384)
--------- --------- --------- --------- -------- --------
Total adjustments........... 40,335 30,932 11,510 17,295 5,292 7,774
--------- --------- --------- --------- -------- --------
Net cash provided by (used
in) operating activities... 73,032 56,146 2,829 20,732 7,171 12,518
Net cash used in
discontinued operations.... -- -- (7,999) -- -- --
--------- --------- --------- --------- -------- --------
Net cash provided by (used
in) continuing
operations................. 73,032 56,146 (5,170) 20,732 7,171 12,518
--------- --------- --------- --------- -------- --------
CASH FLOWS FROM INVESTING
ACTIVITIES
Proceeds from sale of real
estate......................... 21,792 19,627(I) -- -- -- --
Purchase of real estate.......... (376,315) (220,995)(J) (4,114) (24,179) -- --
Additions to real estate,
investments and property held
for sale....................... (26,966) (5,217)(K) (522) (19,033) -- (4,154)
Proceeds from sale of property
held for sale.................. 303 -- -- -- -- --
Purchase of general and limited
partnership interests.......... (199,146) -- (1,208) -- -- (76,104)
Purchase of management
contracts...................... -- -- (11,686) -- -- (36,868)
Purchase of/additions to notes
receivable..................... (59,787) -- (4,236) -- -- (17,647)
Proceeds from repayments of notes
receivable..................... -- -- 214 1,000 -- 8,838
Distributions from investments in
real estate partnerships and
unconsolidated subsidiaries.... 45,791 -- 3,097 3,183 -- 42,615
Contribution to unconsolidated
subsidiaries................... (42,879) -- -- -- -- --
Proceeds from sale of
securities..................... -- -- 642 -- -- --
Purchase of investments held for
sale........................... -- -- (73) -- -- --
Purchase of NHP mortgage loans... (60,575) -- -- -- -- --
Purchase of Ambassador common
stock.......................... (19,881) -- -- -- -- --
--------- --------- --------- --------- -------- --------
Net cash used in investing
activities................. (717,663) (206,585) (17,886) (39,029) -- (83,320)
--------- --------- --------- --------- -------- --------
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from secured notes
payable borrowings............. 225,436 122,568(L) 145,519 156,746 -- 111,001
Principal repayments on secured
notes payable.................. (12,512) -- (141,032) (141,676) -- (12,697)
Proceeds from secured short-term
financing...................... 19,050 -- -- -- -- --
Repayments on secured short-term
financing...................... -- (259,027)(M) (434) -- -- --
Principal repayments on unsecured
short-term notes payable....... (79) (50,800)(M) -- -- -- --
Proceeds (payoff) from unsecured
short-term financing........... (12,500) -- -- -- -- --
Principal repayments on secured
tax-exempt bond financing...... (1,487) -- -- -- -- --
Net borrowings (paydowns) on the
Company's revolving credit
facilities..................... (162,008) -- -- -- -- --
Payment of loan costs, net of
proceeds from interest rate
hedge.......................... (6,387) -- (245) (8,095) -- (2,305)
Proceeds from issuance of common
and preferred stock, net....... 643,224 357,389(N) 6,286 28,946 -- 62,420
Proceeds from exercises of
employee stock options and
warrants....................... 871 -- -- 3,195 -- 7,487
Repurchase of common stock....... -- -- -- -- -- (3,283)
Principal repayments received on
notes due from Officers........ 25,957 -- -- 1,323 -- --
Investments made by minority
interests...................... -- -- -- -- -- 249
Receipt of contributions from
minority interests............. -- 37,345(O) -- -- -- --
Payments of distribution to
minority interests............. -- (2,713)(P) -- -- -- --
Payment of distributions......... (44,660) (19,396)(Q) (11,503)(T) (15,717) (12,173)(U) (2,695)
Payment of distributions to
limited partners............... -- (5,193)(R) -- -- (15)(U) --
Payment of preferred unit
distributions.................. (846) (39,859)(S) -- (2,279) -- --
Payment of distributions to
minority interests............. (5,510) -- -- (3,700) -- (12,578)
Net transactions with
Insignia/ESG................... -- -- -- -- -- (57,612)
--------- --------- --------- --------- -------- --------
Net cash provided by (used
in) financing activities... 668,549 140,314 (1,409) 18,743 (12,188) 89,987
--------- --------- --------- --------- -------- --------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS............. 23,918 (10,125) (24,465) 446 (5,017) 19,185
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD.............. 13,170 -- 36,277 4,002 -- 64,447
--------- --------- --------- --------- -------- --------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD........................ $ 37,088 $ (10,125) $ 11,812 $ 4,448 $ (5,017) $ 83,632
========= ========= ========= ========= ======== ========
<CAPTION>
IFG IFG
MERGER REORGANIZATION PRO
ADJUSTMENTS(G) ADJUSTMENTS(H) FORMA
-------------- -------------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net Income (loss)................ $(80,023) $ 6,882 $ (13,851)
Adjustments to reconcile net
income (loss) to net cash
provided by (used in) operating
activities:
Depreciation and
amortization.................. 35,049 (30,188) 128,169
Gain on investments............ -- -- (12)
(Gain) loss on disposition of
properties.................... 80 -- (3,882)
Minority interests............. (1,552) -- 9,983
Equity in earnings of
unconsolidated partnerships... 29,995 -- 27,537
Equity in earnings of
unconsolidated subsidiaries... -- 4,578 (5,848)
Extraordinary (gain) loss on
early extinguishment of
debt.......................... 5,366 --
Changes in operating assets and
operating liabilities......... -- -- 519
-------- -------- -----------
Total adjustments........... 68,938 (25,610) 156,466
-------- -------- -----------
Net cash provided by (used
in) operating activities... (11,085) (18,728) 142,615
Net cash used in
discontinued operations.... -- -- (7,999)
-------- -------- -----------
Net cash provided by (used
in) continuing
operations................. (11,085) (18,728) 134,616
-------- -------- -----------
CASH FLOWS FROM INVESTING
ACTIVITIES
Proceeds from sale of real
estate......................... -- -- 41,419
Purchase of real estate.......... -- -- (625,603)
Additions to real estate,
investments and property held
for sale....................... -- -- (55,892)
Proceeds from sale of property
held for sale.................. -- -- 303
Purchase of general and limited
partnership interests.......... -- -- (276,458)
Purchase of management
contracts...................... -- -- (48,554)
Purchase of/additions to notes
receivable..................... -- -- (81,670)
Proceeds from repayments of notes
receivable..................... -- -- 10,052
Distributions from investments in
real estate partnerships and
unconsolidated subsidiaries.... -- -- 94,686
Contribution to unconsolidated
subsidiaries................... -- -- (42,879)
Proceeds from sale of
securities..................... -- -- 642
Purchase of investments held for
sale........................... -- -- (73)
Purchase of NHP mortgage loans... -- -- (60,575)
Purchase of Ambassador common
stock.......................... -- -- (19,881)
-------- -------- -----------
Net cash used in investing
activities................. -- -- (1,064,483)
-------- -------- -----------
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from secured notes
payable borrowings............. -- -- 761,270
Principal repayments on secured
notes payable.................. -- -- (307,917)
Proceeds from secured short-term
financing...................... -- -- 19,050
Repayments on secured short-term
financing...................... -- -- (259,461)
Principal repayments on unsecured
short-term notes payable....... -- -- (50,879)
Proceeds (payoff) from unsecured
short-term financing........... -- -- (12,500)
Principal repayments on secured
tax-exempt bond financing...... -- -- (1,487)
Net borrowings (paydowns) on the
Company's revolving credit
facilities..................... -- -- (162,008)
Payment of loan costs, net of
proceeds from interest rate
hedge.......................... -- -- (17,032)
Proceeds from issuance of common
and preferred stock, net....... -- -- 1,098,265
Proceeds from exercises of
employee stock options and
warrants....................... -- -- 11,553
Repurchase of common stock....... -- -- (3,283)
Principal repayments received on
notes due from Officers........ -- -- 27,280
Investments made by minority
interests...................... -- -- 249
Receipt of contributions from
minority interests............. -- -- 37,345
Payments of distribution to
minority interests............. -- -- (2,713)
Payment of distributions......... (24,513)(V) -- (130,657)
Payment of distributions to
limited partners............... -- -- (5,208)
Payment of preferred unit
distributions.................. -- -- (42,984)
Payment of distributions to
minority interests............. -- -- (21,788)
Net transactions with
Insignia/ESG................... -- -- (57,612)
-------- -------- -----------
Net cash provided by (used
in) financing activities... (24,513) -- 879,483
-------- -------- -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS............. (35,598) (18,728) (50,384)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD.............. -- -- 117,896
-------- -------- -----------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD........................ $(35,598) $(18,728) $ 67,512
======== ======== ===========
</TABLE>
P-26
<PAGE> 316
- ---------------
(A) Represents the Partnership's audited consolidated statement of cash flows
for the year ended December 31, 1997.
(B) Represents adjustments to reflect the following as if they had occurred on
January 1, 1997; (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings;
(iii) the 1997 Dispositions; (iv) the 1998 Stock Offerings; (v) the 1998
Acquisitions; (vi) the Probably Purchases; (vii) the 1998 Dispositions; and
(viii) the Preferred Partnership Unit Offering.
(C) Represents adjustments to reflect the purchase of the NHP Real Estate
Companies, the NHP Merger, and the NHP Reorganization, as if the
transactions had taken place on January 1, 1997. These adjustments are
detailed as follows:
<TABLE>
<CAPTION>
NHP
REAL ESTATE NHP NHP NHP NHP
PURCHASE(I) HISTORICAL(II) ADJUSTMENTS(III) REORGANIZATION(IV) TRANSACTIONS
----------- -------------- ---------------- ------------------ ------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (loss)................. $ (7,266) $ 4,350 $(2,222) $ (3,543) $ (8,681)
Adjustments to reconcile net
income (loss) to net cash
provided by (used in) operating
activities:
Depreciation and amortization... 4,058 9,134 5,125 (10,963) 7,354
Gain on investments............. (12) -- -- -- (12)
(Gain) loss on disposition of
properties.................... (3,882) -- -- -- (3,882)
Minority interests.............. (16) -- -- -- (16)
Equity in earnings of
unconsolidated partnerships... 3,905 -- 4,631 6 8,542
Equity in earnings of
unconsolidated subsidiaries... -- -- 4,636 (10,426) (5,790)
Changes in operating assets and
operating liabilities......... (1,036) 6,350 -- -- 5,314
-------- -------- ------- -------- ---------
Total adjustments........... 3,017 15,484 14,392 (21,383) 11,510
-------- -------- ------- -------- ---------
Net cash provided by (used
in) operating
activities................ (4,249) 19,834 12,170 (24,926) 2,829
Net cash used in
discontinued operations... -- (7,999) -- -- (7,999)
-------- -------- ------- -------- ---------
Net cash provided by (used
in) continuing
operations................ (4,249) 11,835 12,170 (24,926) (5,170)
-------- -------- ------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of real estate........... -- (4,114) -- -- (4,114)
Additions to real estate,
investments and property held
for sale........................ (522) -- -- -- (522)
Purchase of general and limited
partnership interests........... (1,208) -- -- -- (1,208)
Purchase of management
contracts....................... -- (11,686) -- -- (11,686)
Purchase of/additions to notes
receivable...................... -- (4,236) -- -- (4,236)
Proceeds from repayments of notes
receivable...................... 214 -- -- -- 214
Distributions from investments in
real estate partnerships and
unconsolidated subsidiaries..... 3,097 -- -- -- 3,097
Proceeds from sale of
securities...................... 642 -- -- -- 642
Purchase of investments held for
sale............................ (73) -- -- -- (73)
-------- -------- ------- -------- ---------
Net cash provided by (used
in) investing
activities................ 2,150 (20,036) -- -- (17,886)
-------- -------- ------- -------- ---------
</TABLE>
P-27
<PAGE> 317
<TABLE>
<CAPTION>
NHP
REAL ESTATE NHP NHP NHP NHP
PURCHASE(I) HISTORICAL(II) ADJUSTMENTS(III) REORGANIZATION(IV) TRANSACTIONS
----------- -------------- ---------------- ------------------ ------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from secured notes
payable borrowings.............. $ 74,019 $ 71,500 $ -- $ -- $ 145,519
Principal repayments on secured
notes payable................... (71,256) (69,776) -- -- (141,032)
Repayments on secured short-term
financing....................... (434) -- -- -- (434)
Payment of loan costs, net of
proceeds from interest rate
hedge........................... -- (245) -- -- (245)
Proceeds from issuances of common
and preferred stock, net........ -- 6,286 -- -- 6,286
Payment of distributions.......... (2,000) -- (9,503) -- (11,503)
-------- -------- ------- -------- ---------
Net cash provided by (used
in) financing
activities................ 329 7,765 (9,503) -- (1,409)
-------- -------- ------- -------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS.................. (1,770) (436) 2,667 (24,926) (24,465)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD............... 25,795 10,482 -- -- 36,277
-------- -------- ------- -------- ---------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD............................ $ 24,025 $ 10,046 $ 2,667 $(24,926) $ 11,812
======== ======== ======= ======== =========
</TABLE>
- ---------------
(i)Represents the adjustment to record cash flow activity from January 1,
1997 to the date of acquisition, as if the acquisition of the NHP Real
Estate Companies had occurred on January 1, 1997. In addition,
represents adjustments to record additional deprecation and
amortization related to the increased basis in the assets of the NHP
Real Estate Companies as a result of the allocation of the purchase
price of the NHP Real Estate Companies and additional interest expense
incurred in connection with borrowings incurred by the Partnership to
consummate the NHP Real Estate Acquisition.
(ii)
Represents the unaudited consolidated statement of cash flows of NHP
for the period from January 1, 1997 through December 8, 1997 (date of
the NHP Merger).
(iii)
Represents the following adjustments occurring as a result of the NHP
Merger: (i) the reduction in personnel costs, primarily severance
costs, pursuant to a restructuring plan; (ii) the incremental
depreciation of the purchase price adjustment related to real estate;
(iii) the incremental amortization of the purchase price adjustment
related to management contracts, furniture, fixtures and equipment, and
goodwill; (iv) the reversal of equity in earnings of NHP during the
pre-merger period when the Partnership held a 47.62% interest in NHP;
and (v) the amortization of the increased basis in investments in real
estate partnerships, based on the purchase price adjustment related to
real estate and an estimated average life of 20 years.
(iv)
Represents adjustments related to the NHP Reorganization, whereby the
Partnership contributed or sold to the Unconsolidated Subsidiaries and
the Unconsolidated Partnership; (i) certain assets and liabilities of
NHP, primarily related to the management operations and other
businesses owned by NHP and (ii) 12 real estate properties containing
2,905 apartment units. The adjustments represent (i) the related cash
flow activity primarily related to the management operations of such
real estate partnerships contributed, with additional depreciation and
amortization recorded related to the Partnership's new basis resulting
from the allocation of the combined purchase price of NHP and the NHP
Real Estate Companies.
(D) Represents the audited historical statement of cash flows of Ambassador for
the year ended December 31, 1997. Certain reclassifications have been made
to Ambassador's historical statement of cash flows to conform to the
Partnership's statement of cash flows presentation. The Ambassador
P-28
<PAGE> 318
historical statement of cash flows excludes an extraordinary loss of $1,384
and a loss on sale of an interest rate cap of $509.
(E) Represents the following adjustments occurring as a result of the
Ambassador Merger: (i) the incremental depreciation of the purchase price
adjustment related to real estate; (ii) the reduction in personnel costs,
primarily severance costs, pursuant to a restructuring plan; (iii) the
reduction of interest expense, resulting from the net reduction of debt;
and (iv) the elimination of the minority interest associated with
Jupiter-I, L.P.
(F) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT
Merger, and the spin-off of New Insignia as if those transaction had
occurred on January 1, 1997. These adjustments are detailed as follows:
<TABLE>
<CAPTION>
NEW
IFG AMIT INSIGNIA IFG
HISTORICAL(I) MERGER(II) SPIN-OFF(III) AS ADJUSTED
------------- ---------- ------------- -----------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)..................... $ 10,233 $ 7,566 $(13,055) $ 4,744
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Depreciation and amortization...... 32,675 63 (15,490) 17,248
Gain on disposition of property.... -- (80) -- (80)
Minority interests................. 12,448 382 41 12,871
Equity in earnings of
unconsolidated partnerships...... (10,027) (2,639) 151 (12,515)
Extraordinary gain on early
extinguishment of debt........... (5,366) -- -- (5,366)
Changes in operating assets and
liabilities...................... -- (2,405) (1,979) (4,384)
--------- -------- -------- --------
Total adjustments............. 29,730 (4,679) (17,277) 7,774
--------- -------- -------- --------
Net cash provided by (used in) operating
activities............................ 39,963 2,887 (30,332) 12,518
--------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to real estate, investments
and property held for sale......... (7,695) 665 2,876 (4,154)
Purchase of general and limited
partnership interests.............. (93,118) -- 17,014 (76,104)
Purchase of management contracts...... (99,540) -- 62,672 (36,868)
Purchase of/additions to notes
receivable......................... (9,172) (14,251) 5,776 (17,647)
Proceeds from repayments of notes
receivable......................... 4,523 7,552 (3,237) 8,838
Distributions from investments in real
estate partnerships and
unconsolidated subsidiaries........ 44,823 -- (2,208) 42,615
--------- -------- -------- --------
Net cash provided by (used in)
investing activities........ (160,179) (6,034) 82,893 (83,320)
--------- -------- -------- --------
</TABLE>
P-29
<PAGE> 319
<TABLE>
<CAPTION>
NEW
IFG AMIT INSIGNIA IFG
HISTORICAL(I) MERGER(II) SPIN-OFF(III) AS ADJUSTED
------------- ---------- ------------- -----------
<S> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from secured notes payable
borrowings......................... $ 118,141 $ -- $ (7,140) $111,001
Principal repayments on secured notes
payable............................ (15,682) -- 2,985 (12,697)
Payment of loan costs, net of proceeds
from interest rate hedge........... (2,305) -- -- (2,305)
Proceeds from issuance of common and
preferred stock, net............... 62,420 -- -- 62,420
Proceeds from exercises of employee
stock options and warrants......... 7,487 -- -- 7,487
Repurchase of common stock............ (3,283) -- -- (3,283)
Investment made by minority
interests.......................... 249 -- -- 249
Payment of distributions.............. -- (2,695) -- (2,695)
Payment of distributions to minority
interests.......................... (12,578) -- -- (12,578)
Net transactions with Insignia/ESG.... -- -- (57,612) (57,612)
--------- -------- -------- --------
Net cash provided by (used in)
financing activities........ 154,449 (2,695) (61,767) 89,987
--------- -------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS........................... 34,233 (5,842) (9,206) 19,185
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD............................. 54,614 9,789 44 64,447
--------- -------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD................................ $ 88,847 $ 3,947 $ (9,162) $ 83,632
========= ======== ======== ========
</TABLE>
- ---------------
(i)Represents the audited consolidated statement of cash flows of IFG for
the year ended December 31, 1997, as reported in IFG's Annual Report on
Form 10-K. Certain reclassifications have been made to IFG's historical
statement of cash flows to conform to the Partnership's statement of
cash flows presentation.
(ii)
Represents the historical statement of cash flows of AMIT, as well as
pro forma adjustments related to the AMIT Merger. The AMIT merger
closed prior to the IFG Merger.
(iii)
Represents the distribution of two shares of New Insignia common stock
for each three shares of IFG common stock to holders of IFG common
stock.
(G) Represents the following adjustments occurring as a result of the IFG
Merger and the IPT Merger; (i) the incremental depreciation of the purchase
price adjustment related to consolidated real estate and investments in
real estate partnerships; (ii) the amortization of goodwill and property
management contracts resulting from the IFG Merger; (iii) the increase in
interest expense resulting from the net increase in debt; and (iv) the
elimination of the income tax provision.
(H) Represents adjustments related to the IFG Reorganization, whereby,
following the IFG Merger, the Partnership contributed or sold to the
Unconsolidated Subsidiaries certain assets and liabilities of IFG,
primarily management contracts and related working capital assets and
liabilities related to IFG's third party management operations. The
adjustments reflect the related cash flow activity primarily related to the
management operations owned by IFG, with additional amortization recorded
related to the Partnership's new basis resulting from the allocation of the
purchase price of IFG.
(I) Represents proceeds from the sale of the 1998 Dispositions, as if these
dispositions occurred on January 1, 1997.
P-30
<PAGE> 320
(J) Represents the use of cash to purchase the 1998 Acquisitions and the
Probable Purchases, as if these acquisitions occurred on January 1, 1997.
(K) Represents cash payments for capital improvements of $300 per unit on the
1997 Acquisitions, the 1998 Acquisitions and the Probable Purchases.
(L) Represents notes payable assumed in connection with the 1998 Acquisitions
and the Probable Purchases, assuming these transactions occurred January 1,
1997.
(M) Represents net principal repayments assuming the 1998 Acquisitions, the
1998 Dispositions, the Probable Purchases, the 1998 Stock Offerings and the
Preferred Partnership Unit Offering occurred January 1, 1997.
(N) Represents cash proceeds from the 1998 Stock Offerings, as if these
offerings occurred on January 1, 1997.
(O) Represents contributions from minority interests assuming the Preferred
Partnership Unit Offering occurred January 1, 1997.
(P) Represents pro forma distributions on the units issued in the Preferred
Partnership Unit Offering as if these units had been issued January 1,
1997.
(Q) Represents distributions paid on the 1997 Stock Offerings as if these
occurred on January 1, 1997.
(R) Represents distributions paid to limited partners on OP Units issued in
connection with the 1997 Acquisitions, the 1998 Acquisitions and the
Probable Purchases, as if the issuance of the OP Units occurred on January
1, 1997.
(S) Represents preferred unit distributions paid on the Class B Preferred
Stock, the Class C Preferred Stock and the 1998 Stock Offerings as if these
occurred on January 1, 1997.
(T) Represents historical distributions of $2,000 and pro forma distributions
on the shares issued in the NHP Merger as if these shares had been issued
on January 1, 1997.
(U) Represents pro forma distributions and distributions to limited partners on
the shares issued in the Ambassador Merger as if these shares had been
issued on January 1, 1997.
(V) Represents pro forma distributions on the shares issued in the IFG Merger
and IPT Merger as if these shares had been issued on January 1, 1997.
P-31
<PAGE> 321
AIMCO PROPERTIES, L.P.
PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (INSIGNIA MERGER)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMPLETED
TRANSACTIONS
AND AMBASSADOR
PROBABLE AMBASSADOR PURCHASE PRICE IFG AS IFG MERGER
HISTORICAL(A) PURCHASE(B) HISTORICAL(C) ADJUSTMENTS(D) ADJUSTED(E) ADJUSTMENTS(F)
------------- ------------ ------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net Income (loss)................. $ 56,269 $ 3,432 $ (2,382) $ 4,255 $ (36,338) $ 7,679
Adjustments to reconcile net
income (loss) to net cash
provided by (used in) operating
activities:
Depreciation and amortization... 67,344 7,512 7,520 1,420 14,890 25,478
(Gain) loss on disposition of
properties..................... (2,783) 2,783 -- -- (6,576) 6,576
Minority interests.............. 1,052 (160) 252 (252) 14,159 (6,622)
Equity in earnings of
unconsolidated partnerships.... 5,078 -- 71 -- (13,492) 18,577
Equity in earnings of
unconsolidated subsidiaries.... (8,413) -- -- -- -- --
Non-cash compensation........... -- -- -- -- 796 --
Changes in operating assets and
operating liabilities.......... (67,722) -- 5,948 -- (7,775) --
--------- -------- -------- ------- --------- --------
Total adjustments............ (5,444) 10,135 13,791 1,168 2,002 44,009
--------- -------- -------- ------- --------- --------
Net cash provided by (used
in) operating activities... 50,825 13,567 11,409 5,423 (34,336) 51,688
--------- -------- -------- ------- --------- --------
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchase of real estate........... (63,839) 63,839(H) -- -- 27,122 --
Additions to real estate.......... (47,878) (1,198)(I) (17,759) -- 9,309 --
Proceeds from sale of property and
investments held for sale....... 19,627 (19,627)(J) -- -- (35) --
Additions to property held for
sale............................ (1,986) -- -- -- -- --
Purchase of general and limited
partnership interests........... (27,016) -- -- -- 17,420 --
Purchase of/additions to notes
receivable...................... (72,445) -- -- -- (27,589) --
Proceeds from repayments/sale of
notes receivable................ 21,562 -- -- -- 21,185 --
Distributions from investments in
real estate partnerships and
unconsolidated subsidiaries..... 513 -- 1,063 -- 22,053 --
Payment of trust based preferred
dividends....................... -- -- -- -- (7,415) --
Cash received in connection with
Ambassador Merger and AMIT
Merger.......................... 4,492 -- -- -- 13,423 --
Contribution to unconsolidated
subsidiaries.................... (13,032) -- -- -- -- --
Purchase of investments held for
sale............................ (4,935) -- -- -- -- --
Redemption of OP Units............ (516) -- -- -- -- --
Merger costs...................... -- -- -- -- (1,402) --
--------- -------- -------- ------- --------- --------
Net cash provided by (used
in) investing activities... (185,453) 43,014 (16,696) -- 74,071 --
--------- -------- -------- ------- --------- --------
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from secured notes
payable borrowings.............. 77,489 -- 37,162 -- 177,234 --
Principal repayments on secured
notes payable................... (56,262) -- -- -- 4,239 --
Principal advances on secured
tax-exempt bond financing....... -- -- 21,784 -- -- --
Principal repayments on secured
tax-exempt bond financing....... (1,436) -- -- -- -- --
Net borrowings/repayments on
secured short-term financing.... (30,693) 209,027(K) (43,002) -- -- --
Net borrowings (paydowns) on the
revolving credit facilities..... -- -- 2,513 -- -- --
Principal repayments on unsecured
short-term notes payable........ -- -- -- -- 2,644 --
Payment of loan costs, net of
proceeds from interest rate
hedge........................... (5,727) -- -- -- (83) --
Proceeds from issuance of common
stock and preferred stock,
net............................. 253,239 (253,239)(L) -- -- -- --
Repurchase of common stock........ (10,972) -- -- -- -- --
Proceeds from exercises of
employee stock options and
warrants........................ -- -- 9,761 -- 6,533 --
Principal repayments received on
notes due from Officers......... 8,084 -- -- -- -- --
Payments of distributions to
minority interests.............. -- (2,034)(M) -- -- -- --
Payment of distributions.......... (73,322) -- -- (3,701)(P) (8,606) (22,360)(Q)
Payment of distributions to
limited partners................ (10,251) (1,919)(N) -- (5)(P) (494) --
Payment of preferred unit
distributions................... (10,916) (16,094)(O) -- -- -- --
Proceeds from issuance of High
Performance Units............... 1,988 -- -- -- -- --
Net transactions with
Insignia/ESG.................... -- -- -- -- (241,003) --
--------- -------- -------- ------- --------- --------
Net cash provided by (used
in) financing activities... 141,221 (64,259) 28,218 (3,706) (59,536) (22,360)
--------- -------- -------- ------- --------- --------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS.................. 6,593 (7,678) 22,931 1,717 (19,801) 29,328
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD............... 37,088 (10,125) 4,448 (5,017) 83,632 (35,598)
--------- -------- -------- ------- --------- --------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD............................ $ 43,681 $(17,803) $ 27,379 $(3,300) $ 63,831 $ (6,270)
========= ======== ======== ======= ========= ========
<CAPTION>
IFG
REORGANIZATION PRO
ADJUSTMENTS(G) FORMA
-------------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net Income (loss)................. $ 8,578 $ 41,493
Adjustments to reconcile net
income (loss) to net cash
provided by (used in) operating
activities:
Depreciation and amortization... (22,641) 101,523
(Gain) loss on disposition of
properties..................... -- --
Minority interests.............. -- 8,429
Equity in earnings of
unconsolidated partnerships.... -- 10,234
Equity in earnings of
unconsolidated subsidiaries.... 7,562 (851)
Non-cash compensation........... -- 796
Changes in operating assets and
operating liabilities.......... -- (69,549)
-------- ---------
Total adjustments............ (15,079) 50,582
-------- ---------
Net cash provided by (used
in) operating activities... (6,501) 92,075
-------- ---------
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchase of real estate........... -- 27,122
Additions to real estate.......... -- (57,526)
Proceeds from sale of property and
investments held for sale....... -- (35)
Additions to property held for
sale............................ -- (1,986)
Purchase of general and limited
partnership interests........... -- (9,596)
Purchase of/additions to notes
receivable...................... -- (100,034)
Proceeds from repayments/sale of
notes receivable................ -- 42,747
Distributions from investments in
real estate partnerships and
unconsolidated subsidiaries..... -- 23,629
Payment of trust based preferred
dividends....................... -- (7,415)
Cash received in connection with
Ambassador Merger and AMIT
Merger.......................... -- 17,915
Contribution to unconsolidated
subsidiaries.................... -- (13,032)
Purchase of investments held for
sale............................ -- (4,935)
Redemption of OP Units............ -- (516)
Merger costs...................... -- (1,402)
-------- ---------
Net cash provided by (used
in) investing activities... -- (85,064)
-------- ---------
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from secured notes
payable borrowings.............. -- 291,885
Principal repayments on secured
notes payable................... -- (52,023)
Principal advances on secured
tax-exempt bond financing....... -- 21,784
Principal repayments on secured
tax-exempt bond financing....... -- (1,436)
Net borrowings/repayments on
secured short-term financing.... -- 135,332
Net borrowings (paydowns) on the
revolving credit facilities..... -- 2,513
Principal repayments on unsecured
short-term notes payable........ -- 2,644
Payment of loan costs, net of
proceeds from interest rate
hedge........................... -- (5,810)
Proceeds from issuance of common
stock and preferred stock,
net............................. -- --
Repurchase of common stock........ -- (10,972)
Proceeds from exercises of
employee stock options and
warrants........................ -- 16,294
Principal repayments received on
notes due from Officers......... -- 8,084
Payments of distributions to
minority interests.............. -- (2,034)
Payment of distributions.......... -- (107,989)
Payment of distributions to
limited partners................ -- (12,669)
Payment of preferred unit
distributions................... -- (27,010)
Proceeds from issuance of High
Performance Units............... -- 1,988
Net transactions with
Insignia/ESG.................... -- (241,003)
-------- ---------
Net cash provided by (used
in) financing activities... -- 19,578
-------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS.................. (6,501) 26,589
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD............... (18,728) 55,700
-------- ---------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD............................ $(25,229) $ 82,289
======== =========
</TABLE>
P-32
<PAGE> 322
- ---------------
(A) Represents the Partnership's unaudited consolidated statement of cash flows
for the nine months ended September 30, 1998.
(B) Represents adjustments to reflect the following as if they had occurred on
January 1, 1997; (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions;
(iii) the Probably Purchases; (iv) the 1998 Dispositions and (v) the
Preferred Partnership Unit Offering.
(C) Represents the unaudited historical statement of cash flows of Ambassador
for the four months ended April 20, 1998. Certain reclassifications have
been made to Ambassador's historical statement of cash flows to conform to
the Partnership's statement of cash flows presentation.
(D) Represents the following adjustments occurring as a result of the
Ambassador Merger: (i) the incremental depreciation of the purchase price
adjustment related to real estate; (ii) the reduction in personnel costs,
primarily severance costs, pursuant to a restructuring plan; (iii) the
reduction of interest expense, resulting from the net reduction of debt;
and (iv) the elimination of the minority interest associated with
Jupiter-I, L.P.
(E) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT
Merger, and the spin-off of New Insignia as if those transaction had
occurred on January 1, 1997. These adjustments are detailed as follows:
<TABLE>
<CAPTION>
NEW
IFG AMIT INSIGNIA IFG
HISTORICAL(I) MERGER(II) SPIN-OFF(III) AS ADJUSTED
------------- ---------- ------------- -----------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)......................................... $ (36,017) $ 4,718 $ (5,039) $(36,338)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization........................... 27,685 48 (12,843) 14,890
Gain on disposition of property......................... (5,888) (688) -- (6,576)
Minority interests...................................... 14,159 -- -- 14,159
Equity in earnings of unconsolidated partnerships....... (12,169) -- (1,323) (13,492)
Non-cash compensation................................... 796 -- -- 796
Changes in operating assets and liabilities............. (18,853) (1,499) 12,577 (7,775)
--------- -------- --------- --------
Total adjustments................................... 5,730 (2,139) (1,589) 2,002
--------- -------- --------- --------
Net cash provided by (used in) operating
activities........................................ (30,287) 2,579 (6,628) (34,336)
--------- -------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of real estate................................... (3,804) -- 30,926 27,122
Additions to real estate.................................. (2,252) (25) 11,586 9,309
Proceeds from sales of property and investments held for
sale.................................................... -- 161 (196) (35)
Purchase of general and limited partnership interests..... (44,270) -- 61,690 17,420
Purchases of / additions to notes receivable.............. (17,107) (15,407) 4,925 (27,589)
Proceeds from repayments/sale of notes receivable......... 151 23,672 (2,638) 21,185
Distributions from investments in real estate partnerships
and unconsolidated subsidiaries......................... 21,360 -- 693 22,053
Payment of trust based preferred dividends................ (7,415) -- -- (7,415)
Cash received in connection with AMIT Merger.............. 13,423 -- -- 13,423
Merger costs.............................................. (1,402) -- -- (1,402)
--------- -------- --------- --------
Net cash provided by (used in) investing
activities........................................ (41,316) 8,401 106,986 74,071
--------- -------- --------- --------
</TABLE>
P-33
<PAGE> 323
<TABLE>
<CAPTION>
NEW
IFG AMIT INSIGNIA IFG
HISTORICAL(I) MERGER(II) SPIN-OFF(III) AS ADJUSTED
------------- ---------- ------------- -----------
<S> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from secured notes payable borrowings............ 186,000 -- (8,766) 177,234
Principal repayments on secured notes payable............. (1,874) -- 6,113 4,239
Principal repayments on unsecured short-term notes
payable................................................. 2,644 -- -- 2,644
Payment of loan costs, net of proceeds from interest rate
hedge................................................... (83) -- -- (83)
Proceeds from exercises of employee stock options and
warrants................................................ 6,533 -- -- 6,533
Payment of distributions.................................. (6,541) (2,065) -- (8,606)
Payment of distributions minority interests............... (494) -- -- (494)
Net transactions with Insignia/ESG........................ (118,424) -- (122,579) (241,003)
--------- -------- --------- --------
Net cash provided by (used in) financing
activities........................................ 67,761 (2,065) (125,232) (59,536)
--------- -------- --------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (3,842) 8,915 (24,874) (19,801)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 88,847 3,947 (9,162) 83,632
--------- -------- --------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 85,005 $ 12,862 $ (34,036) $ 63,831
========= ======== ========= ========
</TABLE>
- ---------------
(i)Represents the unaudited consolidated statement of cash flows of IFG
for the nine months ended September 30, 1998. Certain reclassifications
have been made to IFG's historical statement of cash flows to conform
to the Partnership's statement of cash flows presentation. In addition,
the cash and cash equivalents at the beginning of the period has been
adjusted.
(ii)
Represents the historical statement of cash flows of AMIT, as well as
pro forma adjustments related to the AMIT Merger. The AMIT merger
closed prior to the IFG Merger.
(iii)
Represents the distribution of two shares of New Insignia common stock
for each three shares of IFG common stock to holders of IFG common
stock. In addition, the cash and cash equivalents at the beginning of
the period has been adjusted.
(F) Represents the following adjustments occurring as a result of the IFG
Merger and the IPT Merger; (i) the incremental depreciation of the purchase
price adjustment related to consolidated real estate and investments in
real estate partnerships; (ii) the amortization of goodwill and property
management contracts resulting from the IFG Merger; (iii) the increase in
interest expense resulting from the net increase in debt; and (iv) the
elimination of the income tax provision.
(G) Represents adjustments related to the IFG Reorganization, whereby,
following the IFG Merger, the Partnership contributed or sold to the
Unconsolidated Subsidiaries certain assets and liabilities of IFG,
primarily management contracts and related working capital assets and
liabilities related to IFG's third party management operations. The
adjustments reflect the related cash flow activity primarily related to the
management operations owned by IFG, with additional amortization recorded
related to the Partnership's new basis resulting from the allocation of the
purchase price of IFG.
(H) Represents adjustment to remove the use of cash to purchase the 1998
Acquisitions, as if these acquisitions occurred on January 1, 1997;
therefore, the purchases are included on the Pro Forma Consolidated
Statement of Cash Flows for the year ended December 31, 1997.
(I) Represents cash payments for capital improvements of $300 per unit on the
1998 Acquisitions.
(J) Represents adjustment to remove the proceeds from the sale of the 1998
Dispositions, as if these dispositions occurred on January 1, 1997;
therefore, the proceeds are included on the Pro Forma Consolidated
Statement of Cash Flows for the year ended December 31, 1997.
(K) Represents adjustment to remove net principal repayments assuming the 1998
Acquisitions, the 1998 Dispositions and the 1998 Stock Offerings occurred
January 1, 1997; therefore, the repayments are included on the Pro Forma
Consolidated Statement of Cash Flows for the year ended December 31, 1997.
(L) Represents adjustment to remove cash proceeds from the 1998 Stock
Offerings, as if these offerings occurred on January 1, 1997; therefore,
the repayments are included on the Pro Forma Consolidated Statement of Cash
Flows for the year ended December 31, 1997.
P-34
<PAGE> 324
(M) Represents pro forma distributions on the units issued in the Preferred
Partnership Unit Offering as if these units had been issued January 1,
1997.
(N) Represents distributions paid to limited partners on OP Units issued in
connection with the 1998 Acquisitions and the Probable Purchases, as if the
issuance of the OP Units occurred on January 1, 1997.
(O) Represents preferred unit distributions paid on the 1998 Stock Offerings as
if these occurred on January 1, 1997.
(P) Represents pro forma distributions and distributions to limited partners on
the shares issued in the Ambassador Merger as if these shares had been
issued on January 1, 1997.
(Q) Represents pro forma distributions on the shares issued in the IFG Merger
and IPT Merger as if these shares had been issued on January 1, 1997.
P-35
<PAGE> 325
PRO FORMA FINANCIAL INFORMATION OF
AIMCO PROPERTIES, L.P.
(EXCHANGE OFFERS)
INTRODUCTION
AIMCO Properties L.P. (the "Partnership") intends to offer to purchase
limited partnership interests in syndicated real estate limited partnerships in
which AIMCO holds partnership interests. The Partnership, is subject to
applicable law, plans to offer to purchase certain of such limited partnership
interests in exchange for (i) equity securities of the Partnership; (ii) cash or
(iii) a combination of such equity securities and cash. Such offers are expected
to include terms that will allow limited partners to continue to hold their
limited partnership interests.
The following Pro Forma Consolidated Balance Sheet (Exchange Offers) of the
Partnership as of September 30, 1998 has been prepared as if each of the
following transactions had occurred as of September 30, 1998: (i) all the
transactions discussed in the Pro Forma Financial Statements (Insignia Merger)
appearing elsewhere herein; and (ii) the acceptance of exchange offers by
limited partners in 91 limited partnerships.
The following Pro Forma Consolidated Statement of Operations (Exchange
Offers) and Pro Forma Consolidated Statement of Cash Flows (Exchange Offers) of
the Partnership for the year ended December 31, 1997 has been prepared as if
each of the following transactions had occurred as of January 1, 1997: (i) all
the transactions discussed in the Pro Forma Financial Statements (Insignia
Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers
by limited partners in 91 limited partnerships.
The following Pro Forma Consolidated Statement of Operations (Exchange
Offers) and Pro Forma Consolidated Statement of Cash Flows (Exchange Offers) of
the Partnership for the nine months ended September 30, 1998 has been prepared
as if each of the following transactions had occurred as of January 1, 1998: (i)
all the transactions discussed in the Pro Forma Financial Statements (Insignia
Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers
by limited partners in 91 limited partnerships.
The Pro Forma Financial Information (Exchange Offers) is based, in part, on
the historical financial statements of the partnerships in which the Exchange
Offers are made. The Pro Forma Financial Information (Exchange Offers) is also
based, in part, on the Pro Forma Financial Information (Insignia Merger) of the
Partnership included elsewhere herein. Such pro forma information is based in
part upon: (i) the audited Consolidated Financial Statements of Insignia for the
year ended December 31, 1997; (ii) the audited Consolidated Financial Statements
of Angeles Mortgage Investment Trust ("AMIT") for the year ended December 31,
1997; (iii) the unaudited Consolidated Financial Statements of Insignia for the
nine months ended September 30, 1998; and (iv) the unaudited Consolidated
Financial Statements of AMIT for the period from January 1, 1998 to September
17, 1998. The Pro Forma Financial Information (Insignia Merger) is also based,
in part, upon: (i) the audited Consolidated Financial Statements of Ambassador
for the year ended December 31, 1997; (ii) the audited Consolidated Financial
Statements of the Partnership for the year ended December 31, 1997; (iii) the
unaudited Consolidated Financial Statements of Ambassador for the four months
ended April 30, 1998; (iv) the unaudited Consolidated Financial Statements of
the Partnership for the nine months ended September 30, 1998; and (v) the
historical financial statements of certain properties and companies acquired by
AIMCO filed in AIMCO's Current Reports on Form 8-K, dated April 16, 1997, May 5,
1997, June 3, 1997, September 19, 1997, October 15, 1997, December 1, 1997 and
November 2, 1998. The following Pro Forma Financial Information (Exchange
Offers) should be read in conjunction with such financial statements and notes
thereto.
The unaudited Pro Forma Financial Information (Exchange Offers) has been
prepared under the assumption that after the exchange offers are accepted, AIMCO
will own varying ownership percentages of each partnership, and that the limited
partners will choose to elect to receive 35% of the consideration in the form of
equity securities of AIMCO Properties, L.P. and 65% of the consideration in the
form of cash. The
P-36
<PAGE> 326
interest to be acquired in each of the partnerships, the estimated purchase
price for each partnership, including cash, common units, or preferred units is
summarized below:
<TABLE>
<CAPTION>
INTEREST TO ESTIMATED
BE ACQUIRED PURCHASE
PARTNERSHIP NAME IN PARTNERSHIP PRICE CASH OP UNITS
---------------- -------------- --------- ------- --------
<S> <C> <C> <C> <C>
Angeles Income Properties, Ltd. II.................... 26.70 $ 4,946 $ 3,215 $1,731
Angeles Income Properties, Ltd. III................... 30.63 2,156 1,401 755
Angeles Income Properties, Ltd. IV.................... 18.64 1,154 750 404
Angeles Income Properties, Ltd. 6..................... 37.29 4,523 2,940 1,583
Angeles Opportunity Properties, Ltd................... 37.94 1,729 1,124 605
Angeles Partners VII.................................. 24.86 610 397 213
Angeles Partners VIII................................. 24.80 0 0 0
Angeles Partners IX................................... 18.92 1,171 761 410
Angeles Partners X.................................... 22.97 709 461 248
Angeles Partners XI................................... 21.83 205 133 72
Angeles Partners XII.................................. 11.89 2,877 1,870 1,007
Angeles Partners XIV.................................. 24.93 0 0 0
Baywood Partners, Ltd................................. 25.00 347 226 121
Brampton Associates Partnership....................... 25.00 382 248 134
Buccaneer Trace Limited Partnership................... 25.00 2 1 1
Burgundy Court Associates, L.P........................ 25.00 1,074 698 376
Calmark/Fort Collins, Ltd............................. 25.00 192 125 67
Calmark Heritage Park II Ltd.......................... 25.00 47 31 16
Casa Del Mar Associates Limited Partnership........... 21.16 503 327 176
Catawba Club Associates, L.P.......................... 25.00 85 55 30
Cedar Tree Investors Limited Partnership.............. 25.00 1,037 674 363
Century Properties Fund XVI........................... 12.52 831 540 291
Century Properties Fund XVIII......................... 13.08 474 308 166
Century Properties Fund XIX........................... 15.30 1,765 1,147 618
Century Properties Growth Fund XXII................... 21.43 4,977 3,235 1,742
Chapel Hill, Limited.................................. 21.15 569 370 199
Chestnut Hill Associates Limited Partnership.......... 26.75 1,582 1,028 554
Coastal Commons Limited Partnership................... 25.00 566 368 198
Consolidated Capital Institutional Properties/2 &
Consolidated Capital Equity Properties/2............ 18.98 7,320 4,758 2,562
Consolidated Capital Institutional Properties/3....... 16.37 6,770 4,401 2,369
Consolidated Capital Properties III................... 13.02 1,134 737 397
Consolidated Capital Properties IV.................... 18.04 9,407 6,112 3,295
Consolidated Capital Properties V..................... 16.69 560 364 196
Consolidated Capital Properties VI.................... 25.82 556 361 195
DFW Apartment Investors Limited Partnership........... 35.65 2,719 1,767 952
DFW Residential Investors Limited Partnership......... 37.60 1,092 710 382
Davidson Diversified Real Estate I, L.P............... 34.78 627 408 219
Davidson Diversified Real Estate II, L.P.............. 35.11 1,318 857 461
Davidson Diversified Real Estate III, L.P............. 21.76 0 0 0
Davidson Growth Plus, L.P............................. 23.91 2,304 1,498 806
Davidson Income Real Estate, L.P...................... 30.81 2,691 1,749 942
Drexel Burnham Lambert Real Estate Associates II...... 19.58 994 646 348
Four Quarters Habitat Apartment Associates, Ltd....... 25.00 174 113 61
Fox Strategic Housing Income Partners................. 33.18 2,414 1,569 845
Georgetown of Columbus Associates, L.P................ 25.00 227 148 79
HCW Pension Real Estate Fund Limited Partnership...... 32.64 2,368 1,539 829
Investors First-Staged Equity......................... 49.00 306 199 107
Johnstown/Consolidated Income Partners................ 25.66 1,871 1,216 655
La Colina Partners, Ltd............................... 25.00 583 379 204
Lake Eden Associates, L.P............................. 25.00 632 411 221
Landmark Associates, L.P.............................. 25.00 48 31 17
</TABLE>
P-37
<PAGE> 327
<TABLE>
<CAPTION>
INTEREST TO ESTIMATED
BE ACQUIRED PURCHASE
PARTNERSHIP NAME IN PARTNERSHIP PRICE CASH OP UNITS
---------------- -------------- --------- ------- --------
<S> <C> <C> <C> <C>
Minneapolis Associates II Limited Partnership......... 25.00 $ 2 $ 1 $ 1
Multi-Benefit Realty Fund "87-1-Class A & Class B..... 21.89 1,657 1,077 580
National Property Investors 8......................... 11.13 988 642 346
Northbrook Apartments, Ltd............................ 25.00 209 136 73
Olde Mill Investors Limited Partnership............... 8.75 170 111 59
Orchard Park Apartments Limited Partnership........... 25.00 1 1 0
Park Town Place Associates Limited Partnership........ 24.70 298 194 104
Quail Run Associates, L.P............................. 25.00 487 317 170
Ravensworth Associates Limited Partnership............ 25.00 1 1 0
Rivercreek Apartments Limited Partnership............. 25.00 180 117 63
Rivercrest Apartments, Limited........................ 25.00 1,687 1,097 590
Riverside Park Associates L.P......................... 13.69 590 384 206
Salem Arms of Augusta Limited Partnership............. 25.00 278 181 97
Shaker Square, L.P.................................... 23.75 631 410 221
Shannon Mannor Apartments, Limited Partnership........ 25.00 1,170 761 409
Sharon Woods, L.P..................................... 22.75 499 324 175
Shelter Properties III................................ 15.20 1,960 1,274 686
Shelter Properties IV................................. 50.52 12,764 8,295 4,469
Shelter Properties VI................................. 13.78 1,919 1,247 672
Shelter Properties VII Limited Partnership............ 26.65 1,975 1,284 691
Snowden Village Associates, L.P....................... 25.00 443 288 155
Springhill Lake Investors Limited Partnership......... 11.84 2,908 1,890 1,018
Sturbrook Investors, Ltd.............................. 25.00 377 245 132
Sycamore Creek Associates, L.P........................ 25.00 1 1 0
Texas Residential Investors Limited Partnership....... 18.45 1,147 746 401
Thurber Manor Associates, Limited Partnership......... 25.00 218 142 76
U.S. Realty Partners Limited Partnership.............. 25.00 1,441 937 504
United Investors Growth Properties.................... 39.01 165 107 58
United Investors Growth Properties II................. 25.00 351 228 123
United Investors Income Properties.................... 23.44 1,977 1,285 692
Villa Nova, Limited Partnership....................... 25.00 228 148 80
Walker Springs, Limited............................... 23.99 95 62 33
Wingfield Investors Limited Partnership............... 25.00 179 116 63
Winrock-Houston Limited Partnership................... 13.60 1,041 677 364
Winthrop Apartment Investors Limited Partnership...... 31.60 1,318 857 461
Winthrop Growth Investors 1 Limited Partnership....... 27.94 1,233 801 432
Winthrop Texas Investors Limited Partnership.......... 5.27 158 103 55
Woodmere Associates, L.P.............................. 25.00 280 182 98
Yorktown Towers Associates............................ 25.00 809 526 283
-------- ------- ------
Total (See adjustment C to the Pro Forma Consolidated
Balance Sheet)...................................... $122,463 $79,601 42,862
======== ======= ======
</TABLE>
The unaudited Pro Forma Financial Information (Exchange Offers) has been
prepared using the purchase method of accounting whereby the assets and
liabilities of NHP, the NHP Real Estate Companies, Ambassador, IFG, IPT, the
Exchange Offers, the 1997 Acquisitions, the 1998 Acquisitions and the Probable
Purchases are adjusted to estimated fair market value, based on 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 (Exchange
Offers) may differ from the amounts ultimately determined.
P-38
<PAGE> 328
The following unaudited Pro Forma Financial Information (Exchange Offers)
is presented for informational purposes only and is not necessarily indicative
of the financial position or results of operations of the Partnership 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, results of
operations or cash flows. In the opinion of the Partnership's management, all
material adjustments necessary to reflect the effects of these transactions have
been made.
AIMCO PROPERTIES, L.P.
PRO FORMA CONSOLIDATED BALANCE SHEET (EXCHANGE OFFERS)
AS OF SEPTEMBER 30, 1998
ASSETS
<TABLE>
<CAPTION>
INSIGNIA MERGER PRO FORMA
PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS
--------------- -------------- ---------------
(IN THOUSANDS, EXCEPT UNIT DATA)
<S> <C> <C> <C>
Real estate....................................... $2,625,822 $ 12,764(C)
26,954(D)
13,655(E) $2,679,195
Property held for sale............................ 42,212 -- 42,212
Investments in and notes receivable from
unconsolidated subsidiaries..................... 186,277 -- 186,277
Investments in and notes receivable from
unconsolidated partnerships..................... 924,309 109,699(C)
(13,655)(E)
(8,161)(F)
816(G) 1,013,008
Mortgage notes receivable......................... 20,916 -- 20,916
Cash and cash equivalents......................... 104,955 2,620(D) 107,575
Restricted cash................................... 84,526 1,807(D) 86,333
Accounts receivable............................... 27,900 1,081(D) 28,981
Deferred financing costs.......................... 21,835 -- 21,835
Goodwill.......................................... 251,024 -- 251,024
Property management contracts..................... 38,371 -- 38,371
Other assets...................................... 82,670 422(D) 83,092
---------- -------- ----------
$4,410,817 $148,002 $4,558,819
========== ======== ==========
LIABILITIES AND PARTNERS' CAPITAL
Secured notes payable............................. $ 926,246 $ 23,642(D) $ 949,888
Secured tax-exempt bond financing................. 399,925 -- 399,925
Secured short-term financing...................... 32,691 -- 32,691
Unsecured short-term financing.................... 300,000 79,601(C) 379,601
Accounts payable, accrued and other liabilities... 248,253 826(D) 249,079
Security deposits and deferred income............. 13,171 255(D) 13,426
---------- -------- ----------
1,920,286 104,324 2,024,610
Minority interests................................ 79,431 816(G) 80,247
Company obligated mandatorily redeemable
convertible securities of a subsidiary trust.... 149,500 -- 149,500
Redeemable common partnership units............... 277,581 8,161(D)
(8,161)(F)
30,616(C) 308,197
Redeemable preferred partnership units............ -- 12,246(C) 12,246
Partner's capital
General and Special Limited Partner............. 1,496,457 -- 1,496,457
Preferred Units................................. 487,562 -- 487,562
---------- -------- ----------
1,984,019 -- 1,984,019
---------- -------- ----------
$4,410,817 $148,002 $4,558,819
========== ======== ==========
</TABLE>
- ---------------
(A) See "Pro Forma Financial Information (Insignia Merger)."
P-39
<PAGE> 329
(B) Represents adjustments related to the Partnership's purchase of additional
limited partnership interests in 91 real estate partnerships. Selected
historical balance sheet data as of September 30, 1998 (unaudited) related
to the 91 real estate partnerships is as follows (dollars in thousands):
<TABLE>
<S> <C>
Real estate................................................. $1,082,652
Cash........................................................ 151,024
Total assets................................................ 1,493,409
Mortgages payable........................................... 1,585,196
Partners' capital (deficit)................................. (171,740)
</TABLE>
(C) Represents the purchase price paid by the Partnership to the limited
partners in order to obtain additional ownership by AIMCO in 91 real estate
partnerships. For the purposes of the pro-forma presentation, it is
assumed: (i) 65% of the purchase price is funded with cash by drawing down
on the Partnership's unsecured short term credit facility; (ii) 25% of the
purchase price is funded by the issuance of 749,362 OP Units at $40 per OP
Unit; and (iii) 10% of the purchase price is funded by the issuance of 8%
Preferred OP Units.
(D) Represents historical balance sheet data related to the one real estate
partnership that will be consolidated as a result of the Partnership's
purchase of additional partnership interests.
(E) Represent the adjustment to real estate recorded in the IFG Merger related
to the one real estate partnership that will be consolidated as a result of
the Partnership's purchase of additional partnership interests.
(F) Represents the elimination of the partners' capital in the one real estate
partnership that will be consolidated as a result of the Partnership's
purchase of additional partnership interests.
(G) Represents minority interest of the one real estate partnership that will
be consolidated as a result of the Partnership's purchase of additional
partnership interests.
P-40
<PAGE> 330
AIMCO PROPERTIES, L.P.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (EXCHANGE OFFERS)
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
INSIGNIA MERGER PRO FORMA
PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS
--------------- -------------- ---------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Rental and other property operations.............. $ 431,256 $ 11,270(C) $ 442,526
Property operating expenses....................... (182,830) (6,612)(C) (189,442)
Owned property management expense................. (11,831) -- (11,831)
Depreciation...................................... (96,264) (2,589)(C) (98,853)
--------- -------- ---------
Income from property operations................... 140,331 2,069 142,400
--------- -------- ---------
Management fees and other income.................. 41,676 -- 41,676
Management and other expenses..................... (23,683) -- (23,683)
Corporate overhead allocation..................... (588) -- (588)
Amortization...................................... (26,480) -- (26,480)
--------- -------- ---------
Income from service company business.............. (9,075) -- (9,075)
Minority interest in service company business..... (10) -- (10)
--------- -------- ---------
Partnership's share of income from service company
business........................................ (9,085) -- (9,085)
--------- -------- ---------
General and administrative expenses............... (21,371) -- (21,371)
Interest expense.................................. (113,788) (5,691)(D)
(2,220)(C) (121,699)(H)
Interest income................................... 21,734 21,734
Minority interests................................ (9,983) (51)(E) (10,034)
Equity in losses of unconsolidated partnerships... (27,537) (16,864)(F)
483(G) (43,918)(I)
Equity in earnings of Unconsolidated
Subsidiaries.................................... 5,848 -- 5,848
--------- -------- ---------
Net income (loss)................................. (13,851) (22,274) (36,125)(H)
Income attributable to Preferred Unitholders...... 42,174 980 43,154(J)
--------- -------- ---------
Income (loss) attributable to OP Unitholders...... (56,025) $(23,254) $ (79,279)(H)
========= ======== =========
Basic earnings (loss) per OP Unit................. (.83) $ (1.16)(H)
========= =========
Diluted earnings (loss) per OP Unit............... $ (.83) $ (1.16)(H)
========= =========
Weighted average OP Units outstanding............. 67,522 68,287
========= =========
Weighted average OP Units and equivalents
outstanding..................................... 68,366 69,131
========= =========
</TABLE>
- ---------------
(A) See "Pro Forma Financial Information (Insignia Merger)."
(B) Represents adjustments related to the Partnership's purchase of additional
limited partnership interests in 91 real estate partnerships. Selected
historical operating data for the year ended December 31, 1997 related to
the 91 real estate partnerships is as follows (dollars in thousands):
<TABLE>
<S> <C>
Revenue..................................................... $456,968
Operating expense........................................... 249,097
Depreciation................................................ 87,344
Interest.................................................... 138,778
Net income.................................................. 15,005
</TABLE>
(C) Represents historical statement of operations data related to the one real
estate partnership that will be consolidated as a result of the
Partnership's purchase of additional limited partnership interests.
P-41
<PAGE> 331
(D) Represents the increase in interest expense related to borrowings to pay
the cash portion of the purchase price of the partnership interests. The
interest rate used in the calculation of interest expense was LIBOR plus
1.75%.
(E) Represents the minority interests share of net income of the one real
estate partnership that will be consolidated as a result of the
Partnership's purchase of additional limited partnership interests.
(F) Represents the changes in the Partnership's equity in losses from the 91
real estate partnerships of (i) $10,740 resulting from the Partnership's
increase in the ownership based on the historical operating results of the
91 real estate partnerships; and (ii) amortization of $6,124 related to the
increased basis in investments in real estate partnerships, as a result of
the allocation of the purchase price of the partnership interests, based on
an estimated average life of 20 years.
(G) Represents the elimination of the equity earnings related to the one real
estate partnership that will be consolidated as a result of the
Partnership's purchase of additional limited partnership interests.
(H) The pro forma financial statements have been prepared under the assumption
that the limited partners will elect 65% of the consideration to be paid in
cash, 25% of the consideration to be paid in the form of common OP Units,
and 10% of the consideration to be paid in the form of 8% Preferred OP
Units. The following table shows the effect on interest expense, net loss,
preferred unit distributions, and net loss per OP Unit in the event that
the limited partners elect to receive all their consideration in cash,
common OP Units, and 8% Preferred OP Units, respectively:
<TABLE>
<CAPTION>
8% PREFERRED
PRO FORMA CASH COMMON OP UNITS OP UNITS
--------- --------- --------------- ------------
<S> <C> <C> <C> <C>
Interest expense......... $(121,699) $(124,763) $(116,008) $(116,008)
Net loss................. (36,125) (39,189 (30,434) (30,434)
Preferred unit
distributions.......... 43,154 42,174 42,174 51,971
Net loss attributable to
OP Unitholders......... (79,279) (81,363) (72,608) (82,405)
Net loss per OP Unit..... (1.16) (1.20) (1.03) (1.22)
</TABLE>
In addition, the following table presents the net impact to interest
expense, net loss, and net loss per OP Unit assuming the interest rate per
annum increases by 0.25%:
<TABLE>
<CAPTION>
8% PREFERRED
PRO FORMA CASH COMMON OP UNITS OP UNITS
--------- -------- --------------- ------------
<S> <C> <C> <C> <C>
Increase in interest
expense.................. $ 1,137 $ 1,245 $ 938 $ 938
Net loss................... (37,262) (40,434) (31,372) (31,372)
Net loss attributable to OP
Unitholders.............. (80,416) (82,608) (73,546) (83,343)
Net loss per OP Unit....... (1.18) (1.22) (1.04) (1.23)
</TABLE>
(I) The pro forma financial statements have been prepared under the assumption
that after the exchange offers are accepted, the Partnership will own 49%
of certain 88 Partnerships, 25% of two Partnerships, and 100% of one
Partnership. The amount included in the pro forma financial statements
assume an acceptance rate of 100%. The following table shows the effect on
equity in earnings of unconsolidated partnerships, net loss, net loss
attributable to OP Unitholders, and net loss per OP Unit in the event that
the Partnership will have an acceptance rate of 50% of the interests
tendered and will own varying percentages of each partnership:
<TABLE>
<S> <C>
Equity in earnings of unconsolidated partnerships........... $(36,510)
Net loss.................................................... (26,084)
Net loss attributable to OP Unitholders..................... (68,784)
Net loss per OP Unit........................................ (1.01)
</TABLE>
(J) Represents the net income attributable to holders of the Class B Preferred
Units, the Class C Preferred Units, the Class D Preferred Units, the Class
G Preferred Units, the Class H Preferred Units, the Class J Preferred Units
and the 8% Preferred OP Units as if these Preferred Units had been issued
as of January 1, 1997.
P-42
<PAGE> 332
AIMCO PROPERTIES, L.P.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (EXCHANGE OFFERS)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
INSIGNIA MERGER PRO FORMA
PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS
--------------- -------------- ---------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Rental and other property operations............... $ 337,307 $ 8,654(C) $ 345,961
Property operating expenses........................ (131,851) (4,389)(C) (136,240)
Owned property management expense.................. (8,933) -- (8,933)
Depreciation....................................... (78,479) (1,941)(C) (80,420)
--------- -------- ---------
Income from property operations.................... 118,044 2,324 120,368
--------- -------- ---------
Management fees and other income................... 28,912 -- 28,912
Management and other expenses...................... (14,386) -- (14,386)
Corporate overhead allocation...................... (196) -- (196)
Amortization....................................... (15,243) -- (15,243)
--------- -------- ---------
Income from service company business............... (913) -- (913)
Minority interest in service company business...... -- -- --
--------- -------- ---------
Partnership's share of income from service company
business......................................... (913) -- (913)
--------- -------- ---------
General and administrative expenses................ (8,632) -- (8,632)
Interest expense................................... (85,010) (4,250)(D)
(1,630)(C) (90,890)(H)
Interest income.................................... 40,887 40,887
Minority interests................................. (8,429) (119)(E) (8,548)
Equity in losses of unconsolidated partnerships.... (10,234) (13,156)(F)
41(G) (23,349)(I)
Equity in earnings of Unconsolidated
Subsidiaries..................................... 851 -- 851
Amortization of goodwill........................... (5,071) -- (5,071)
--------- -------- ---------
Net income (loss).................................. 41,493 (16,790) 24,703(H)
Income attributable to Preferred Unitholders....... 32,414 735 33,149(J)
--------- -------- ---------
Income (loss) attributable to OP Unitholders....... $ 9,079 $(17,525) $ (8,446)(H)
========= ======== =========
Basic earnings (loss) per OP Unit.................. $ .13 $ (.12)(H)
========= =========
Diluted earnings (loss) per OP Unit................ $ .13 $ (.12)(H)
========= =========
Weighted average OP Units outstanding.............. 68,554 69,319
========= =========
Weighted average OP Units and equivalents
outstanding...................................... 69,218 69,983
========= =========
</TABLE>
- ---------------
(A) See "Pro Forma Financial Information (Insignia Merger)."
(B) Represents adjustments related to the Partnership's purchase of additional
limited partnership interests in 91 real estate partnerships. Selected
historical operating data (unaudited) for the nine months ended September
30, 1998 related to the 91 real estate partnerships is as follows (dollars
in thousands):
<TABLE>
<S> <C>
Revenue..................................................... $338,937
Operating expense........................................... 182,529
Depreciation................................................ 64,127
Interest.................................................... 103,756
Net income.................................................. (9,329)
</TABLE>
(C) Represents historical statement of operations data related to the one real
estate partnership that will be consolidated as a result of the
Partnership's purchase of additional limited partnership interests.
P-43
<PAGE> 333
(D) Represents the increase in interest expense related to borrowings to pay
the cash portion of the purchase price of the partnership interests. The
interest rate used in the calculation of interest expense was LIBOR plus
1.75%.
(E) Represents the minority interests share of net income of the one real
estate partnership that will be consolidated as a result of the
Partnership's purchase of additional limited partnership interests.
(F) Represents the changes in the Partnership's equity in losses from the 91
real estate partnerships of (i) $8,552 resulting from the Partnership's
increase in the ownership based on the historical operating results of the
91 real estate partnerships; and (ii) amortization of $4,604 related to the
increased basis in investments in real estate partnerships, as a result of
the allocation of the purchase price of the partnership interests, based on
an estimated average life of 20 years.
(G) Represents the elimination of the equity earnings related to the one real
estate partnership that will be consolidated as a result of the
Partnership's purchase of additional limited partnership interests.
(H) The pro forma financial statements have been prepared under the assumption
that the limited partners will elect 65% of the consideration to be paid in
cash, 25% of the consideration to be paid in the form of common OP Units,
and 10% of the consideration to be paid in the form of 8% Preferred OP
Units. The following table shows the effect on interest expense, net
income, preferred unit distributions, and net loss per OP Unit in the event
that the limited partners elect to receive all their consideration in cash,
common OP Units, and 8% Preferred OP Units, respectively:
<TABLE>
<CAPTION>
8% PREFERRED
PRO FORMA CASH COMMON OP UNITS OP UNITS
--------- -------- --------------- ------------
<S> <C> <C> <C> <C>
Interest expense........... $(90,890) $(93,184) $(86,640) $(86,640)
Net income................. 24,703 22,409 28,953 28,953
Preferred unit
distributions............ 33,149 32,414 32,414 39,762
Net loss attributable to OP
Unitholders.............. (8,446) (10,005) (3,461) (10,809)
Net loss per OP Unit....... (.12) (.15) (.05) (.16)
</TABLE>
In addition, the following table presents the net impact to interest
expense, net loss, and net loss per OP Unit assuming the interest rate per
annum increases by 0.25%:
<TABLE>
<CAPTION>
8% PREFERRED
PRO FORMA CASH COMMON OP UNITS OP UNITS
--------- ------- --------------- ------------
<S> <C> <C> <C> <C>
Increase in interest
expense.................... $ 851 $ 931 $ 702 $ 702
Net income................... 24,703 21,478 28,251 28,251
Net loss attributable to OP
Unitholders................ (9,296) (10,936) (4,163) (11,511)
Net loss per OP Unit......... (.13) (.16) (.06) (.17)
</TABLE>
(I) The pro forma financial statements have been prepared under the assumption
that after the exchange offers are accepted, AIMCO will own 49% of certain
88 Partnerships, 25% of two Partnerships, and 100% of one Partnership. The
following table shows the effect on equity in earnings of unconsolidated
partnerships, net income, net income (loss) attributable to OP Unitholders,
and net loss per OP Unit in the event the Partnership will own varying
percentages of each partnership.
<TABLE>
<S> <C>
Equity in earnings of unconsolidated partnerships........... $(17,797)
Net income.................................................. 32,216
Net income (loss) attributable to OP Unitholders............ (593)
Net income (loss) per OP Unit............................... (.01)
</TABLE>
(J) Represents the net income attributable to holders of the Class B Preferred
Units, the Class C Preferred Units, the Class D Preferred Units, the Class
G Preferred Units, the Class H Preferred Units, the Class J Preferred Units
and the 8% Preferred OP Units as if these Preferred Units had been issued
as of January 1, 1997.
P-44
<PAGE> 334
AIMCO PROPERTIES, L.P.
PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (EXCHANGE OFFERS)
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
INSIGNIA MERGER PRO FORMA
PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS
--------------- -------------- ---------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (loss)......................................... $ (13,851) $(22,274)(C) $ (36,125)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization........................... 128,169 2,589(D) 130,758
Gain on investments..................................... (12) -- (12)
(Gain) loss on disposition of properties................ (3,882) -- (3,882)
Minority interests...................................... 9,983 51 10,034
Equity in earnings of unconsolidated partnerships....... 27,537 16,864(E)
(483)(F) 43,918
Equity in earnings of unconsolidated subsidiaries....... (5,848) -- (5,848)
Extraordinary (gain) loss on early extinguishment of
debt.................................................. --
Changes in operating assets and operating liabilities... 519 (660)(G) (141)
---------- -------- ----------
Total adjustments................................... 156,466 18,361 174,827
---------- -------- ----------
Net cash provided by (used in) operating
activities........................................ 142,615 (3,913) 138,702
Net cash used in discontinued operations............ (7,999) -- (7,999)
---------- -------- ----------
Net cash provided by (used in) continuing
operations........................................ 134,616 (3,913) 130,703
---------- -------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of real estate......................... 41,419 -- 41,419
Purchase of real estate................................... (625,603) -- (625,603)
Additions to real estate, investments and property held
for sale................................................ (55,892) (1,024)(G) (56,916)
Proceeds from sale of property held for sale.............. 303 -- 303
Purchase of general and limited partnership interests..... (276,458) (79,601)(H) (356,059)
Purchase of management contracts.......................... (48,554) -- (48,554)
Purchase of/additions to notes receivable................. (81,670) -- (81,670)
Proceeds from repayments of notes receivable.............. 10,052 -- 10,052
Distributions from investments in real estate partnerships
and unconsolidated subsidiaries......................... 94,686 10,070(I) 104,756
Contribution to unconsolidated subsidiaries............... (42,879) -- (42,879)
Proceeds from sale of securities.......................... 642 -- 642
Purchase of investments held for sale..................... (73) -- (73)
Purchase of NHP........................................... (60,575) -- (60,575)
Purchase of Ambassador common stock....................... (19,881) -- (19,881)
---------- -------- ----------
Net cash used in investing activities............... (1,064,483) (70,555) (1,135,038)
---------- -------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from secured notes payable borrowings............ 761,270 -- 761,270
Principal repayments on secured notes payable............. (307,917) (713)(G) (308,630)
Proceeds from secured short-term financing................ 19,050 79,601(H) 98,651
Repayments on secured short-term financing................ (259,461) -- (259,461)
Principal repayments on unsecured short-term notes
payable................................................. (50,879) -- (50,879)
Proceeds (payoff) from unsecured short-term financing..... (12,500) -- (12,500)
Principal repayments on secured tax-exempt bond
financing............................................... (1,487) -- (1,487)
Net borrowings (paydowns) on the Company's revolving
credit facilities....................................... (162,008) -- (162,008)
Payment of loan costs, net of proceeds from interest rate
hedge................................................... (17,032) -- (17,032)
Proceeds from issuance of common and preferred stock,
net..................................................... 1,098,265 -- 1,098,265
Proceeds from exercises of employee stock options and
warrants................................................ 11,553 -- 11,553
Repurchase of common stock................................ (3,283) -- (3,283)
Principal repayments received on notes due from
Officers................................................ 27,280 -- 27,280
Investments made by minority interests.................... 249 -- 249
Receipt of contributions from minority interests.......... 37,345 -- 37,345
Payments of distributions to minority interests........... (2,713) -- (2,713)
Payment of distributions.................................. (130,657) -- (130,657)
Payment of distributions to limited partners.............. (5,208) (1,415)(J) (6,623)
Payment of preferred unit distributions................... (42,984) (979)(K) (43,963)
Payment of distributions to minority interests............ (21,788) -- (21,788)
Net transactions with Insignia/ESG........................ (57,612) -- (57,612)
---------- -------- ----------
Net cash provided by financing activities........... 879,483 76,494 955,977
---------- -------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (50,384) 2,026 (48,358)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 117,896 2,291 120,187
---------- -------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 67,512 $ 4,317 $ 71,829
========== ======== ==========
</TABLE>
P-45
<PAGE> 335
- ---------------
(A) See "Pro Forma Financial Information (Insignia Merger)."
(B) Represents adjustments related to the Partnership's purchase of additional
limited partnership interests in 91 real estate partnerships. Selected
historical cash flow data for the year ended December 31, 1997 related to
the 91 real estate partnerships is as follows (dollars in thousands):
<TABLE>
<S> <C>
Cash provided by operating activities..................... $ 65,372
Cash used in investing activities......................... (11,713)
Cash used in financing activities......................... (74,617)
</TABLE>
(C) Represents the pro forma net loss related to the Partnership's purchase of
additional limited partnership interests in 91 real estate partnerships.
(D) Represents additional deprecation related to the one real estate
partnership that will be consolidated as a result of the Partnership's
purchase of additional limited partnership interests, based on the
Partnership's new basis in the real estate. Buildings and improvements are
depreciated on the straight-line method over a period of 20 years and
furniture and fixtures are depreciated on the straight-line method over a
period of 5 years.
(E) Represents the increase in the Partnership's equity in earnings from the 90
real estate partnerships resulting from the Partnership's corresponding
increase in ownership.
(F) Represents the elimination of the equity earnings related to one real
estate partnership that will be consolidated as a result of the
Partnership's purchase of the additional limited partnership interests.
(G) Represents historical cash flow data related to the one real estate
partnership that will be consolidated as a result of the Partnership's
purchase of additional limited partnership interests.
(H) Represents the cash portion of the purchase price (and additional
borrowings by the Partnership) related to the acquisition by the
Partnership of additional limited partnership interests in 91 real estate
limited partnerships.
(I) Represents the distributions to be received for the additional partnership
interests acquired by the Partnership in the 91 real estate partnerships,
based on the historical distributions paid per partnership unit.
(J) Represents adjustments for distributions paid on the Common OP Units
assumed to be issued by the Partnership to acquire the additional limited
partnership interests in 91 real estate limited partnerships, at the
historical distribution amount of $1.85 per Common OP Unit.
(K) Represents adjustments for distributions paid on the Preferred OP Units
assumed to be issued by the Partnership to acquire the additional limited
partnership interests in 91 real estate limited partnerships, at a
distribution rate of 8% per Preferred OP Unit.
P-46
<PAGE> 336
AIMCO PROPERTIES, L.P.
PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (EXCHANGE OFFERS)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
INSIGNIA MERGER PRO FORMA
PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS
--------------- -------------- ---------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (loss)......................................... $ 41,493 $(16,790)(C) $ 24,703
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization........................... 101,523 1,941(D) 103,464
(Gain) loss on disposition of properties................ -- -- --
Minority interests...................................... 8,429 119 8,548
Equity in earnings of unconsolidated partnerships....... 10,234 13,156(E)
(41)(F) 23,349
Equity in earnings of unconsolidated subsidiaries....... (851) -- (851)
Non-cash compensation................................... 796 -- 796
Changes in operating assets and operating liabilities... (69,549) (21)(G) (69,570)
--------- -------- ---------
Total adjustments................................... 50,582 15,154 65,736
--------- -------- ---------
Net cash provided by operating activities........... 92,075 (1,636) 90,439
--------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of real estate................................... 27,122 -- 27,122
Additions to real estate.................................. (57,526) (668)(G) (58,194)
Proceeds from sale of property and investments held for
sale.................................................... (35) -- (35)
Additions to property held for sale....................... (1,986) -- (1,986)
Purchase of general and limited partnership interests..... (9,596) -- (9,596)
Purchase of/additions to notes receivable................. (100,034) -- (100,034)
Proceeds from repayments/sale of notes receivable......... 42,747 -- 42,747
Distributions from investments in real estate partnerships
and unconsolidated subsidiaries......................... 23,629 5,809(H) 29,438
Payment of trust based preferred dividends................ (7,415) -- (7,415)
Cash received in connection with Ambassador Merger and
AMIT Merger............................................. 17,915 -- 17,915
Contribution to unconsolidated subsidiaries............... (13,032) -- (13,032)
Purchase of investments held for sale..................... (4,935) -- (4,935)
Redemption of OP Units.................................... (516) -- (516)
Merger costs.............................................. (1,402) -- (1,402)
--------- -------- ---------
Net cash used in investing activities............... (85,064) 5,141 (79,923)
--------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from secured notes payable borrowings............ 291,885 -- 291,885
Principal repayments on secured notes payable............. (52,023) -- (52,023)
Principal advances on secured tax-exempt bond financing... 21,784 -- 21,784
Principal repayments on secured tax-exempt bond
financing............................................... (1,436) -- (1,436)
Net borrowings/ repayments on secured short-term
financing............................................... 135,332 -- 135,332
Net borrowings (paydowns) on the revolving credit
facilities.............................................. 2,513 (812)(G) 1,701
Principal repayments on unsecured short-term notes
payable................................................. 2,644 -- 2,644
Payment of loan costs, net of proceeds from interest rate
hedge................................................... (5,810) -- (5,810)
Proceeds from issuance of common stock and preferred
stock, net.............................................. -- -- --
Repurchase of common stock................................ (10,972) -- (10,972)
Proceeds from exercises of employee stock options and
warrants................................................ 16,294 -- 16,294
Principal repayments received on notes due from
Officers................................................ 8,084 -- 8,084
Receipt of contributions from minority interests.......... -- -- --
Payments of distributions to minority interests........... (2,034) (2,034)
Payment of distributions.................................. (107,989) -- (107,989)
Payment of distributions to limited partners.............. (12,669) (1,291)(I) (13,960)
Payment of preferred unit distributions................... (27,010) (735)(J) (27,745)
Proceeds from issuance of High Performance Units.......... 1,988 -- 1,988
Net transactions with Insignia/ESG........................ (241,003) -- (241,003)
--------- -------- ---------
Net cash provided by financing activities........... 19,578 (2,838) 16,740
--------- -------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 26,589 667 27,256
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 55,700 4,316 60,016
--------- -------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 82,289 $ 4,983 $ 87,272
========= ======== =========
</TABLE>
P-47
<PAGE> 337
- ---------------
(A) See "Pro Forma Financial Information (Insignia Merger)."
(B) Represents adjustments related to the Partnership's purchase of additional
limited partnership interests in 91 real estate partnerships. Selected
historical cash flow data for the nine months ended September 30, 1998
related to the 91 real estate partnerships is as follows (dollars in
thousands):
<TABLE>
<S> <C>
Cash provided by operating activities..................... $ 76,113
Cash used in investing activities......................... (22,616)
Cash used in financing activities......................... (42,273)
</TABLE>
(C) Represents the pro forma net loss related to the Partnership's purchase of
additional limited partnership interests in 91 real estate partnerships.
(D) Represents additional deprecation related to the one real estate
partnership that will be consolidated as a result of the Partnership's
purchase of additional limited partnership interests, based on the
Partnership's new basis in the real estate. 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.
(E) Represents the increase in the Partnership's equity in earnings from the 90
real estate partnerships resulting from the Partnership's corresponding
increase in ownership.
(F) Represents the elimination of the equity earnings related to one real
estate partnership that will be consolidated as a result of the
Partnership's purchase of the additional limited partnership interests.
(G) Represents historical cash flow data related to the one real estate
partnership that will be consolidated as a result of the Partnership's
purchase of additional limited partnership interests.
(H) Represents the distributions to be received for the additional partnership
interests acquired by the Partnership in the 91 real estate partnerships,
based on the historical distributions paid per partnership unit.
(I) Represents adjustments for distributions paid on the Common OP Units
assumed to be issued by the Partnership to acquire the additional limited
partnership interests in 91 real estate limited partnerships, at the
historical distribution amount of $1.6875 per Common OP Unit.
(J) Represents adjustments for distributions paid on the Preferred OP Units
assumed to be issued by the Partnership to acquire the additional limited
partnership interests in 91 real estate limited partnerships, at a
distribution rate of 8% per Preferred OP Unit.
P-48
<PAGE> 338
APPENDIX A
OPINION OF ROBERT A. STANGER & CO., INC.
PRELIMINARY FORM OF OPINION
AIMCO Properties, L.P.
1873 South Bellaire -- Suite 1700
Denver, Colorado 80222
Re: Sycamore Creek Associates, L.P.
Gentlemen:
You have advised us that AIMCO Properties, L.P. (the "Purchaser"), a
subsidiary of Apartment Investment and Management Company ("AIMCO"), which
directly or indirectly owns the general partner (the "General Partner") of
Sycamore Creek Associates, L.P. (the "Partnership") (the Purchaser, AIMCO, the
General Partner and other affiliates and subsidiaries of AIMCO are referred to
herein collectively as the "Company"), is contemplating a transaction (the
"Offer") in which limited partnership interests in the Partnership (the "Units")
will be acquired by the Purchaser in exchange for an offer price per Unit of
$100 in cash, or 2.75 Common OP Units of the Purchaser, or 4.00 Preferred OP
Units of the Purchaser, or a combination of any of such forms of consideration.
The limited partners of the Partnership (the "Limited Partners") will have the
choice to maintain their current interest in the Partnership or exchange their
Units for any or a combination of such forms of consideration. The amount of
cash, Common OP Units or Preferred OP Units offered per Unit is referred to
herein as the "Offer Price."
You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide
its opinion as to whether the Offer Price is fair to the Limited Partners of the
Partnership from a financial point of view.
Since its founding in 1978, Stanger and its affiliates have provided
information, research, investment banking and consulting services to clients
located throughout the United States, including major New York Stock Exchange
member firms, insurance companies and over seventy companies engaged in the
management and operation of partnerships and real estate investment trusts. The
investment banking activities of Stanger include financial advisory and fairness
opinion services, asset and securities valuations, industry and company research
and analysis, litigation support and expert witness services, and due diligence
investigations in connection with both publicly registered and privately placed
securities transactions.
Stanger, as part of its investment banking business, is regularly engaged
in the valuation of businesses and their securities in connection with mergers,
acquisitions, reorganizations and for estate, tax, corporate and other purposes.
Stanger's valuation practice principally involves partnerships, partnership
securities and the assets typically held through partnerships, such as real
estate, oil and gas reserves, cable television systems and equipment leasing
assets.
In the course of our analysis for rendering this opinion, we have, among
other things:
1. Reviewed a draft of the Prospectus Supplement related to the Offer
in a form management has represented to be substantially the same as will
be distributed to the Limited Partners;
2. Reviewed the Partnership's financial statements for the years ended
December 31, 1996 and 1997, and the quarterly report for the period ending
September 30, 1998, which the Partnership's management has indicated to be
the most current available financial statements;
3. Reviewed descriptive information concerning the real property owned
by the Partnership (the "Property"), including location, number of units
and unit mix, age, amenities and land acreage;
4. Reviewed summary historical operating statements for the Property,
for the years ended December 31, 1996 and 1997, and the nine months ending
September 30, 1998;
A-1
<PAGE> 339
5. Reviewed the 1998 operating budget for the Property prepared by the
Partnership's management. Such budgets are summarized in the Prospectus
Supplement under the section "Stanger Analysis -- Summary of Materials
Considered";
6. Reviewed the estimate of liquidation value and going concern value
provided by the general partner to Stanger. Such estimates are described in
the Prospectus Supplement under the section "Fairness of the
Offer -- Comparison of Consideration to Alternative Consideration." In
addition, we reviewed the 1998 operating budgets for each property provided
by the Partnership;
7. Discussed with management market conditions for the Property;
conditions in the market for sales/acquisitions of properties similar to
that owned by the Partnership; historical, current and expected operations
and performance of the Property and the Partnership; the physical condition
of the Property including any deferred maintenance; and other factors
influencing value of the Property and the Partnership;
8. Performed a site inspection of the Property;
9. Reviewed data and discussed with local sources real estate rental
market conditions in the market of the Property, and reviewed available
information relating to acquisition criteria for income-producing
properties similar to the Property;
10. Reviewed information provided by the Company relating to debt
encumbering the Property; and
11. Conducted such other studies, analyses, inquiries and
investigations as we deemed appropriate.
In rendering this opinion, we have relied upon and assumed, without
independent verification, the accuracy and completeness of all financial
information and management reports and data, and all other reports and
information contained in the Prospectus Supplement or that were provided, made
available or otherwise communicated to us by the Partnership and the Company. We
have not performed an independent appraisal, engineering study or environmental
study of the assets and liabilities of the Partnership. We have relied upon the
representations of the Partnership and the Company concerning, among other
things, any environmental liabilities, deferred maintenance and estimated
capital expenditures and replacement reserve requirements, the determination and
valuation of non-real estate assets and liabilities of the Partnership, the
terms and conditions of any debt encumbering the Property, the allocation of net
Partnership values between the General Partner and Limited Partners, and the
transaction costs and fees associated with a sale of the Property. We have also
relied upon the assurance of the Partnership and the Company that any financial
statements, projections, capital expenditure estimates, debt summaries, value
estimates and other information contained in the Prospectus Supplement or
otherwise provided or communicated to us were reasonably prepared and adjusted
on bases consistent with actual historical experience, are consistent with the
terms of the Partnership Agreement, and reflect the best currently available
estimates and good faith judgments; that no material changes have occurred in
the value of the Property or other information reviewed between the date such
information was provided and date of this letter; that the Partnership and the
Company are not aware of any information or facts that would cause the
information supplied to us to be incomplete or misleading; that the highest and
best use of the Property is as improved; and that all calculations were made in
accordance with the terms of the Partnership Agreement.
In addition, you have advised us that upon consummation of the Offer, the
Partnership will continue its business and operations substantially as they are
currently being conducted and that the Partnership and the Company do not have
any present plans, proposals or intentions which relate to or would result in an
extraordinary transaction, such as a merger, reorganization or liquidation
involving the Partnership; a sale of the Partnership's Properties or the sale or
transfer of a material amount of the Partnership's other assets; any changes to
the Partnership's senior management or personnel or their compensation; any
changes in the Partnership's present capitalization or distribution policy; or
any other material changes in the Partnership's structure or business.
We have not been requested to, and therefore did not: (i) select the Offer
Price or the method of determining the Offer Price in connection with the Offer;
(ii) make any recommendation to the Partnership or its partners with respect to
whether to accept or reject the Offer or whether to accept the cash, Preferred
OP
A-2
<PAGE> 340
Units or Common OP Units if the Offer is accepted; (iii) solicit any third party
indications of interest in acquiring the assets of the Partnership or all or any
part of the Partnership; or (iv) express any opinion as to (a) the tax
consequences of the proposed Offer to the Limited Partners, (b) the terms of the
Partnership Agreement or of any agreements or contracts between the Partnership
and the Company, (c) the Company's business decision to effect the Offer or
alternatives to the Offer, (d) the amount of expenses relating to the Offer or
their allocation between the Company and the Partnership or tendering Limited
Partners; (e) the relative value of the cash, Preferred OP Units or Common OP
Units to be issued in connection with the Offer; and (f) any adjustments made to
determine the Offer price and the net amounts distributable to the Limited
Partners, including but not limited to, balance sheet adjustments to reflect the
Partnership's estimate of the value of current net working capital balances,
reserve accounts, and liabilities, and adjustments to the Offer Price for
distributions made by the Partnership subsequent to the date of the initial
Offer. We are not expressing any opinion as to the fairness of any terms of the
Offer other than the Offer Price for the Units.
Our opinion is based on business, economic, real estate and capital market,
and other conditions as they existed and could be evaluated as of the date of
our analysis and addresses the Offer in the context of information available as
of the date of our analysis. Events occurring after that date could affect the
assumptions used in preparing the opinion.
The summary of the opinion set forth in the Prospectus Supplement does not
purport to be a complete description of the analyses performed, or the matters
considered, in rendering our opinion. The analyses and the summary set forth
must be considered as a whole, and selecting portions of such summary or
analyses, without considering all factors and analyses, would create an
incomplete view of the processes underlying this opinion. In rendering this
opinion, judgment was applied to a variety of complex analyses and assumptions.
The assumptions made, and the judgments applied, in rendering the opinion are
not readily susceptible to partial analysis or summary description. The fact
that any specific analysis is referred to in the Prospectus Supplement is not
meant to indicate that such analysis was given greater weight than any other
analysis.
Based upon and subject to the foregoing, it is our opinion that as of the
date of this letter the Offer Price is fair to the Limited Partners of the
Partnership from a financial point of view.
Yours truly,
Robert A. Stanger & Co., Inc.
Shrewsbury, New Jersey
March , 1999
A-3
<PAGE> 341
APPENDIX B
DIRECTORS AND EXECUTIVE OFFICERS OF
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
AND
AIMCO-GP, INC.
The names and positions of the executive officers of Apartment Investment
and Management Company ("AIMCO"), AIMCO-GP, Inc. ("AIMCO-GP") and the directors
of AIMCO are set forth below. The two directors of AIMCO-GP are Terry Considine
and Peter Kompaniez. The two directors of the general partner of your
partnership are Peter K. Kompaniez and Patrick J. Foye. The two executive
officers of the general partner of your partnership are Patrick J. Foye,
Executive Vice President, and Timothy R. Garrick, Vice President -- Accounting.
Unless otherwise indicated, the business address of each executive officer and
director is 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222. Each
executive officer and director is a citizen of the United States of America.
<TABLE>
<CAPTION>
NAME POSITION
---- --------
<S> <C>
Terry Considine.............................. Chairman of the Board of Directors and Chief Executive
Officer
Peter K. Kompaniez........................... Vice Chairman, President and Director
Thomas W. Toomey............................. Executive Vice President -- Finance and Administration
Joel F. Bonder............................... Executive Vice President, General Counsel and
Secretary
Patrick J. Foye.............................. Executive Vice President
Paul J. McAuliffe............................ Executive Vice President -- Capital Markets
Robert Ty Howard............................. Executive Vice President -- Ancillary Services
Steven D. Ira................................ Executive Vice President and Co-Founder
Harry G. Alcock.............................. Senior Vice President -- Acquisitions
Troy D. Butts................................ Senior Vice President and Chief Financial Officer
Richard S. Ellwood........................... Director
J. Landis Martin............................. Director
Thomas L. Rhodes............................. Director
John D. Smith................................ Director
</TABLE>
<TABLE>
<CAPTION>
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS
---- ---------------------------------------------
<S> <C>
Terry Considine...................... Mr. Considine has been Chairman of the Board of Directors
and Chief Executive Officer of AIMCO and AIMCO-GP since July
1994. He is the sole owner of Considine Investment Co. and
prior to July 1994 was owner of approximately 75% of
Property Asset Management, L.L.C., Limited Liability
Company, a Colorado limited liability company, and its
related entities (collectively, "PAM"), one of AIMCO's
predecessors. On October 1, 1996, Mr. Considine was
appointed Co-Chairman and director of Asset Investors Corp.
and Commercial Asset Investors, Inc., two other public real
estate investment trusts, and appointed as a director of
Financial Assets Management, LLC, a real estate investment
trust manager. Mr. Considine has been involved as a
principal in a variety of real estate activities, including
the acquisition, renovation, development and disposition of
properties. Mr. Considine has also controlled entities
engaged in other businesses such as television broadcasting,
gasoline distribution and environmental laboratories. Mr.
Considine received a B.A. from Harvard College, a J.D. from
Harvard Law School and is admitted as a member of the
Massachusetts Bar.
</TABLE>
B-1
<PAGE> 342
<TABLE>
<CAPTION>
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS
---- ---------------------------------------------
<S> <C>
Peter K. Kompaniez................... Mr. Kompaniez has been Vice Chairman and a director of AIMCO
since July 1994 and was appointed President of AIMCO in July
1997. Mr. Kompaniez has served as Vice President of AIMCO-GP
from July 1994 through July 1998 and was appointed President
in July 1998. Mr. Kompaniez has been a director of AIMCO-GP
since July 1994. Since September 1993, Mr. Kompaniez has
owned 75% of PDI Realty Enterprises, Inc., a Delaware
corporation ("PDI"), one of AIMCO's predecessors, and serves
as its President and Chief Executive Officer. From 1986 to
1993, he served as President and Chief Executive Officer of
Heron Financial Corporation ("HFC"), a United States holding
company for Heron International, N.V.'s real estate and
related assets. While at HFC, Mr. Kompaniez administered the
acquisition, development and disposition of approximately
8,150 apartment units (including 6,217 units that have been
acquired by the AIMCO) and 3.1 million square feet of
commercial real estate. Prior to joining HFC, Mr. Kompaniez
was a senior partner with the law firm of Loeb and Loeb
where he had extensive real estate and REIT experience. Mr.
Kompaniez received a B.A. from Yale College and a J.D. from
the University of California (Boalt Hall).
Thomas W. Toomey..................... Mr. Toomey has served as Senior Vice President -- Finance
and Administration of AIMCO since January 1996 and was
promoted to Executive Vice-President-Finance and
Administration in March 1997. Mr. Toomey has been Executive
Vice President -- Finance and Administration of AIMCO-GP
since July 1998. From 1990 until 1995, Mr. Toomey served in
a similar capacity with Lincoln Property Company ("LPC") as
well as Vice President/Senior Controller and Director of
Administrative Services of Lincoln Property Services where
he was responsible for LPC's computer systems, accounting,
tax, treasury services and benefits administration. From
1984 to 1990, he was an audit manager with Arthur Andersen &
Co. where he served real estate and banking clients. From
1981 to 1983, Mr. Toomey was on the audit staff of Kenneth
Leventhal & Company. Mr. Toomey received a B.S. in Business
Administration/Finance from Oregon State University and is a
Certified Public Accountant.
Joel F. Bonder....................... Mr. Bonder was appointed Executive Vice President and
General Counsel of AIMCO since December 8, 1997. Mr. Bonder
has been Executive Vice President and General Counsel of
AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Bonder
served as Senior Vice President and General Counsel of NHP
from April 1994 until December 1997. Mr. Bonder served as
Vice President and Deputy General Counsel of NHP from June
1991 to March 1994 and as Associate General Counsel of NHP
from 1986 to 1991. From 1983 to 1985, Mr. Bonder was with
the Washington, D.C. law firm of Lane & Edson, P.C. From
1979 to 1983, Mr. Bonder practiced with the Chicago law firm
of Ross and Hardies. Mr. Bonder received an A.B. from the
University of Rochester and a J.D. from Washington
University School of Law.
Patrick J. Foye...................... Mr. Foye has served as Executive Vice President of AIMCO and
AIMCO-GP since May 1998. Prior to joining AIMCO, Mr. Foye
was a partner in the law firm of Skadden, Arps, Slate,
Meagher & Flom LLP from 1989 to 1998 and was Managing
Partner of the firm's
</TABLE>
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<TABLE>
<CAPTION>
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS
---- ---------------------------------------------
<S> <C>
Brussels, Budapest and Moscow offices from 1992 through
1994. Mr. Foye is also Deputy Chairman of the Long Island
Power Authority and serves as a member of the New York State
Privatization Council. He received a B.A. from Fordham
College and a J.D. from Fordham University Law School.
Paul J. McAuliffe.................... Mr. McAuliffe was appointed Executive Vice
President -- Capital Markets in February 1999. Prior to
joining AIMCO, Mr. McAuliffe was Senior Managing Director of
Secured Capital Corp and prior to that time had been a
Managing Director of Smith Barney, Inc. from 1993 to 1996,
where he was a key member of the underwriting team that led
AIMCO's initial public offering in 1994. Mr. McAuliffe was
also a Managing Director and head of the real estate group
at CS First Boston from 1990 to 1993 and he was a Principal
in the real estate group at Morgan Stanley & Co., Inc. from
1983 to 1990. Mr. McAuliffe received a B.A. from Columbia
College and an MBA from University of Virginia, Darden
School.
Robert Ty Howard..................... Mr. Howard has served as Executive Vice
President -- Ancillary Services since February 1998. Mr.
Howard was appointed Executive Vice President -- Ancillary
Services of AIMCO-GP in July 1998. Prior to joining AIMCO,
Mr. Howard served as an officer and/or director of four
affiliated companies, Hecco Ventures, Craig Corporation,
Reading Company and Decurion Corporation. Mr. Howard was
responsible for financing, mergers and acquisitions
activities, investments in commercial real estate, both
nationally and internationally, cinema development and
interest rate risk management. From 1983 to 1988, he was
employed by Spieker Properties. Mr. Howard received a B.A.
from Amherst College, a J.D. from Harvard Law School and an
M.B.A. from Stanford University Graduate School of Business.
Steven D. Ira........................ Mr. Ira is a Co-Founder of AIMCO and has served as Executive
Vice President of AIMCO since July 1994. Mr. Ira has been
Executive Vice President of AIMCO-GP since July 1998. From
1987 until July 1994, he served as President of PAM. Prior
to merging his firm with PAM in 1987, Mr. Ira acquired
extensive experience in property management. Between 1977
and 1981 he supervised the property management of over 3,000
apartment and mobile home units in Colorado, Michigan,
Pennsylvania and Florida, and in 1981 he joined with others
to form the property management firm of McDermott, Stein and
Ira. Mr. Ira served for several years on the National
Apartment Manager Accreditation Board and is a former
president of both the National Apartment Association and the
Colorado Apartment Association. Mr. Ira is the sixth
individual elected to the Hall of Fame of the National
Apartment Association in its 54-year history. He holds a
Certified Apartment Property Supervisor (CAPS) and a
Certified Apartment Manager designation from the National
Apartment Association, a Certified Property Manager (CPM)
designation from the National Institute of Real Estate
Management (IREM) and he is a member of the Board of
Directors of the National Multi-Housing Council, the
National Apartment Association and the Apartment Association
of Metro Denver. Mr. Ira received a B.S. from Metropolitan
State College in 1975.
</TABLE>
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<TABLE>
<CAPTION>
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS
---- ---------------------------------------------
<S> <C>
Harry G. Alcock...................... Mr. Alcock has served as Vice President of AIMCO and
AIMCO-GP since July 1996, and was promoted to Senior Vice
President -- Acquisitions in October 1997, with
responsibility for acquisition and financing activities
since July 1994. From June 1992 until July 1994, Mr. Alcock
served as Senior Financial Analyst for PDI and HFC. From
1988 to 1992, Mr. Alcock worked for Larwin Development
Corp., a Los Angeles based real estate developer, with
responsibility for raising debt and joint venture equity to
fund land acquisitions and development. From 1987 to 1988,
Mr. Alcock worked for Ford Aerospace Corp. He received his
B.S. from San Jose State University.
Troy D. Butts........................ Mr. Butts has served as Senior Vice President and Chief
Financial Officer of AIMCO since November 1997. Mr. Butts
has been Senior Vice President and Chief Financial Officer
of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr.
Butts served as a Senior Manager in the audit practice of
the Real Estate Services Group for Arthur Andersen LLP in
Dallas, Texas. Mr. Butts was employed by Arthur Andersen LLP
for ten years and his clients were primarily publicly-held
real estate companies, including office and multi-family
real estate investment trusts. Mr. Butts holds a Bachelor of
Business Administration degree in Accounting from Angelo
State University and is a Certified Public Accountant.
Richard S. Ellwood................... Mr. Ellwood was appointed a Director of AIMCO in July 1994
12 Auldwood Lane and is currently Chairman of the Audit Committee. Mr.
Rumson, NJ 07660 Ellwood is the founder and President of R.S. Ellwood & Co.,
Incorporated, a real estate investment banking firm. Prior
to forming R.S. Ellwood & Co., Incorporated in 1987, Mr.
Ellwood had 31 years experience on Wall Street as an
investment banker, serving as: Managing Director and senior
banker at Merrill Lynch Capital Markets from 1984 to 1987;
Managing Director at Warburg Paribas Becker from 1978 to
1984; general partner and then Senior Vice President and a
director at White, Weld & Co. from 1968 to 1978; and in
various capacities at J.P. Morgan & Co. from 1955 to 1968.
Mr. Ellwood currently serves as a director of FelCor Suite
Hotels, Inc. and Florida East Coast Industries, Inc.
J. Landis Martin..................... Mr. Martin was appointed a Director of AIMCO in July 1994
199 Broadway and became Chairman of the Compensation Committee in March
Suite 4300 1998. Mr. Martin has served as President and Chief Executive
Denver, CO 80202 Officer and a Director of NL Industries, Inc., a
manufacturer of titanium dioxide, since 1987. Mr. Martin has
served as Chairman of Tremont Corporation, a holding company
operating through its affiliates Titanium Metals Corporation
("TIMET") and NL Industries, Inc., since 1990 and as Chief
Executive Officer and a director of Tremont since 1998. Mr.
Martin has served as Chairman of Timet, an integrated
producer of titanium, since 1987 and Chief Executive Officer
since January 1995. From 1990 until its acquisition by
Dresser Industries, Inc. ("Dresser") in 1994, Mr. Martin
served as Chairman of the Board and Chief Executive Officer
of Baroid Corporation, an oilfield services company. In
addition to Tremont, NL and TIMET, Mr. Martin is a director
of Dresser, which is engaged in the petroleum services,
hydrocarbon and engineering industries.
</TABLE>
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<TABLE>
<CAPTION>
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS
---- ---------------------------------------------
<S> <C>
Timothy R. Garrick................... Mr. Garrick has been Vice President -- Accounting of the
general partner and AIMCO since October 1, 1998. Prior to
that date, Mr. Garrick served as Vice
President -- Accounting Services of Insignia Financial Group
from June 1997 until October 1998. From 1992 until June of
1997, Mr. Garrick served as Vice President of Partnership
Accounting for Insignia Financial Group. From 1987 to 1990,
Mr. Garrick served as Investment Advisor for U.S. Shelter
Corporation. From 1984 to 1987, Mr. Garrick served as
Partnership Investment Analyst for U.S. Shelter Corporation.
From 1979 to 1984, Mr. Garrick worked on the audit staff of
Ernst & Whinney. Mr. Garrick received his B.S. Degree from
the University of South Carolina in 1979 and is a certified
public accountant.
Thomas L. Rhodes..................... Mr. Rhodes was appointed a Director of AIMCO in July 1994.
215 Lexingon Avenue Mr. Rhodes has served as the President and a Director of
4th Floor National Review magazine since November 30, 1992, where he
New York, NY 10016 has also served as a Director since 1998. From 1976 to 1992
, he held various positions at Goldman, Sachs & Co. and was
elected a General Partner in 1986 and served as a General
Partner from 1987 until November 27, 1992. He is currently
Co-Chairman of the Board , Co-Chief Executive Officer and a
Director of Commercial Assets Inc. and Asset Investors
Corporation. He also serves as a Director of Delphi
Financial Group, Inc. and its subsidiaries, Delphi
International Ltd., Oracle Reinsurance Company, and the
Lynde and Harry Bradley Foundation. Mr. Rhodes is Chairman
of the Empire Foundation for Policy Research, a Founder and
Trustee of Change NY, a Trustee of The Heritage Foundation,
and a Trustee of the Manhattan Institute.
John D. Smith........................ Mr. Smith was appointed a Director of AIMCO in November
3400 Peachtree Road 1994. Mr. Smith is Principal and President of John D. Smith
Suite 831 Developments. Mr. Smith has been a shopping center
Atlanta, GA 30326 developer, owner and consultant for over 8.6 million square
feet of shopping center projects including Lenox Square in
Atlanta, Georgia. Mr. Smith is a Trustee and former
President of the International Council of Shop ping Centers
and was selected to be a member of the American Society of
Real Estate Counselors. Mr. Smith served as a Director for
Pan-American Properties, Inc. (National Coal Board of Great
Britain) formerly known as Continental Illinois Properties.
He also serves as a director of American Fidelity Assurance
Companies and is retained as an advisor by Shop System Study
Society, Tokyo, Japan.
</TABLE>
B-5
<PAGE> 346
Questions and requests for assistance or for additional copies of this
Prospectus Supplement and the Letter of Transmittal may be directed to the
Information Agent at its telephone number and address listed below. You may also
contact your broker, dealer, bank, trust company or other nominee for assistance
concerning the Offer.
The Information Agent for the offer is:
RIVER OAKS PARTNERSHIP SERVICES, INC.
<TABLE>
<S> <C> <C>
By Mail: By Overnight Courier: By Hand:
P.O. Box 2065 111 Commerce Road 111 Commerce Road
S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072
Attn.: Reorganization Dept. Attn.: Reorganization Dept.
</TABLE>
By Telephone:
TOLL FREE (888) 349-2005
or
(201) 896-1900
By Fax:
(201) 896-0910
<PAGE> 347
PROSPECTUS
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
$600,000,000 OF
PREFERRED STOCK AND
CLASS A COMMON STOCK
AIMCO PROPERTIES, L.P.
$200,000,000 OF PARTNERSHIP PREFERRED UNITS
$200,000,000 OF PARTNERSHIP COMMON UNITS
We may offer and sell these securities in connection with acquisitions of
businesses, properties, securities or other assets. In addition, we may issue
our Class A Common Stock upon conversion of shares our Preferred Stock, and we
may also issue shares of our Preferred Stock and shares of our Class A Common
Stock in exchange for our Partnership Preferred Units or our Partnership Common
Units tendered for redemption.
Apartment Investment and Management Company has elected to be taxed for
Federal income tax purposes as a REIT. Our Class A Common Stock is listed on the
New York Stock Exchange under the symbol "AIV." On March 23, 1999, the last
reported sales price of our Class A Common Stock on the NYSE was $35 3/16 per
share. There is no public market for our Partnership Preferred Units or our
Partnership Common Units. However, after a one-year holding period, each of our
Partnership Common Units may be redeemed in exchange for a share of our Class A
Common Stock or, at our option, a cash amount equal to the market value of one
share of our Class A Common Stock at the time of the redemption (subject to
antidilution adjustments).
SEE "RISK FACTORS" BEGINNING ON PAGE 2 FOR A DISCUSSION OF MATERIAL RISKS
IN CONNECTION WITH AN INVESTMENT IN THE SECURITIES, INCLUDING WITHOUT
LIMITATION, THE FOLLOWING RISKS:
- Our acquisition and development activities expose us to several negative
factors, including difficulty in managing our rapid growth, the
incurrence of unforeseen costs, and the possible failure to realize
projected occupancy and rental rates.
- Our organizational documents do not limit the amount of debt that we may
incur, and our Board of Directors may change our leverage policy at any
time. Our cash flow from operations might be insufficient to make
required debt payments, and we might be unable to refinance our debt at
all or on terms as favorable as the terms of our existing debt. In
addition, we are subject to debt covenants that may restrict our ability
to make distributions to investors.
- Our real estate investment and management activities expose us to several
potentially negative factors that are beyond our control such as local
economic conditions, intense competition, potential environmental
liabilities and change of laws, any of which could negatively affect our
financial condition or results of operations.
- If Apartment Investment and Management Company fails to qualify as a
REIT, (i) it would not be allowed a deduction for dividends it pays, (ii)
it would be subject to federal income tax at corporate rates, (iii) it
might need to borrow funds or liquidate investments on unfavorable terms
in order to pay the applicable tax and (iv) it would no longer be
required to make distributions to stockholders.
- Our charter limits the number of shares of our stock that may be held by
any one investor to 8.7% (15% in the case of certain pension trusts,
registered investment companies and Terry Considine, Chairman of the
Board of Directors and Chief Executive Officer of AIMCO). Consequently,
our stockholders are limited in their ability to effect a change of our
control.
- We and certain of our officers and/or directors and unconsolidated
subsidiaries have entered into, and may in the future enter into, certain
transactions that may result in conflicts of interest between us and such
officers and/or directors and unconsolidated subsidiaries.
- Investors in our partnership units must hold their units for one year,
subject to certain exceptions. Thereafter investors may transfer such
partnership units, subject to the satisfaction of certain conditions,
including the general partner's right of first refusal. Holders of our
partnership units do not have the ability to vote for or remove the
general partner, so they can not effect a change of control of AIMCO
Properties, L.P.
To the extent not otherwise described herein, the form in which the
securities are to be issued, and the terms of such securities, including without
limitation, their specific designation, or aggregate initial offering price,
rate and timing of distributions or dividends, redemption, conversion and
exchange terms, voting rights, and other specific terms may be set forth in a
Prospectus Supplement, together with the terms of offering of such securities.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
The date of this Prospectus is March 26, 1999.
<PAGE> 348
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
THE COMPANY..................................... 1
RISK FACTORS.................................... 2
Risks of Acquisition and Development
Activities.................................. 2
Risks Associated With Debt Financing.......... 3
Moody's Negative Outlook for AIMCO Ratings.... 3
Increases in Interests Rates May Increase our
Interest Expense............................ 3
Risks of Interest Rate Hedging Arrangements... 3
Covenant Restrictions May Limit Our Ability to
Make Payments to Our Investors.............. 4
We Depend on Distributions and Other Payments
from Our Subsidiaries....................... 4
Real Estate Investment Risks.................. 4
Possible Environmental Liabilities............ 4
Laws Benefitting Disabled Persons May Result
in Unanticipated Expenses................... 5
Risks Relating to Regulation of Affordable
Housing..................................... 5
The Loss of Property Management Contracts
Would Reduce Our Revenues................... 5
Dependence on Certain Executive Officers...... 5
Possible Conflicts of Interest; Transactions
with Affiliates............................. 6
Tax Risks..................................... 6
Possible Adverse Consequences of Limits on
Ownership of Shares......................... 7
Our Charter and Maryland Law May Limit the
Ability of a Third Party to Acquire Control
of the Company.............................. 8
Risks Associated with the Year 2000 Issue..... 8
Risks Associated With an Investment in OP
Units....................................... 9
SECURITIES COVERED BY THIS PROSPECTUS........... 15
RATIO OF EARNINGS TO FIXED CHARGES.............. 17
SELECTED HISTORICAL FINANCIAL DATA.............. 18
PER SHARE AND PER UNIT DATA..................... 21
Per Share Data................................ 21
Per Unit Data................................. 21
Stock Prices, Dividends and Distributions..... 22
BUSINESS OF THE COMPANY......................... 23
Operating and Financial Strategies............ 23
Growth Strategies............................. 24
Property Management Strategies................ 25
Accounting Policies and Definitions........... 25
Policies of the Company with Respect to
Certain Other Activities.................... 26
Contribution and Management Agreement......... 28
Financial Information About Industry
Segments.................................... 28
Competition................................... 28
Regulation.................................... 29
Insurance..................................... 29
Employees..................................... 29
1998 Developments............................. 30
Potential Property Acquisitions............... 32
Litigation.................................... 32
Year 2000 Readiness........................... 32
DESCRIPTION OF PREFERRED STOCK.................. 35
General....................................... 35
Dividends..................................... 35
Convertibility................................ 36
</TABLE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Redemption and Sinking Fund................... 36
Liquidation Rights............................ 36
Voting Rights................................. 37
Miscellaneous................................. 37
Other Rights.................................. 38
Transfer Agent and Registrar.................. 38
Class B Preferred Stock....................... 38
Class C Preferred Stock....................... 39
Class D Preferred Stock....................... 40
Class G Preferred Stock....................... 41
Class H Preferred Stock....................... 42
Class J Preferred Stock....................... 43
Class K Preferred Stock....................... 44
DESCRIPTION OF COMMON STOCK..................... 45
General....................................... 45
Class A Common Stock.......................... 46
Restrictions on Transfer...................... 46
Business Combinations......................... 47
Control Share Acquisitions.................... 48
DESCRIPTION OF OP UNITS......................... 48
General....................................... 48
Purpose and Business.......................... 49
Management by the AIMCO GP.................... 49
Management Liability and Indemnification...... 50
Compensation and Fees......................... 50
Fiduciary Responsibilities.................... 50
Class B Partnership Preferred Units........... 51
Class C Partnership Preferred Units........... 52
Class D Partnership Preferred Units........... 52
Class E Partnership Preferred Units........... 52
Class F Partnership Preferred Units........... 52
Class G Partnership Preferred Units........... 53
Class H Partnership Preferred Units........... 53
Class J Partnership Preferred Units........... 53
Class K Partnership Preferred Units........... 53
Class One Partnership Preferred Units......... 54
High Performance Units........................ 55
Distributions................................. 55
Allocations of Net Income and Net Loss........ 56
Withholding................................... 57
Return of Capital............................. 57
Redemption Rights............................. 57
Partnership Right to Call Common OP Units..... 58
Transfers and Withdrawals..................... 58
Issuance of Capital Stock by AIMCO............ 59
Dilution...................................... 59
Amendment of the AIMCO Operating Partnership
Agreement................................... 59
Procedures for Actions and Consents of
Partners.................................... 60
Records and Accounting; Fiscal Year........... 60
Reports....................................... 61
Tax Matters................................... 61
Dissolution and Winding Up.................... 61
COMPARISON OF THE AIMCO OPERATING PARTNERSHIP
AND AIMCO..................................... 63
COMPARISON OF COMMON OP UNITS AND CLASS A COMMON
STOCK......................................... 72
</TABLE>
i
<PAGE> 349
<TABLE>
<CAPTION>
PAGE
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<S> <C>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OF THE AIMCO OPERATING PARTNERSHIP............ 75
Overview...................................... 75
Results of Operations......................... 75
Liquidity and Capital Resources............... 78
Capital Expenditures.......................... 79
Funds from Operations......................... 80
Contingencies................................. 81
High Performance Units........................ 83
Year 2000 Readiness Disclosure................ 84
Liquidity and Capital Resources............... 92
Capital Expenditures.......................... 95
Funds from Operations......................... 96
Cash Flows.................................... 97
Commitments and Contingencies................. 97
FEDERAL INCOME TAXATION OF AIMCO AND AIMCO
STOCKHOLDERS.................................. 101
General....................................... 101
Tax Aspects of AIMCO's Investments in
Partnerships................................ 105
Taxation of Management Subsidiaries........... 107
Taxation of Taxable Domestic Stockholders..... 107
Taxation of Foreign Stockholders.............. 108
Information Reporting Requirements and Backup
Withholding................................. 110
Taxation of Tax-Exempt Stockholders........... 110
FEDERAL INCOME TAXATION OF THE AIMCO OPERATING
PARTNERSHIP AND OP UNITHOLDERS................ 111
</TABLE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Partnership Status............................ 111
Taxation of OP Unitholders.................... 113
Allocations of AIMCO Operating Partnership
Profits and Losses.......................... 113
Tax Basis of a Partnership Interest........... 113
Cash Distributions............................ 113
Tax Consequences Upon Contribution of Property
to the AIMCO Operating Partnership.......... 114
Limitations on Deductibility of Losses........ 115
Section 754 Election.......................... 116
Depreciation.................................. 116
Sale, Redemption, or Exchange of OP Units..... 117
Termination of the AIMCO Operating
Partnership................................. 117
Alternative Minimum Tax....................... 118
Information Returns and Audit Procedures...... 118
Taxation of Foreign OP Unitholders............ 119
OTHER TAX CONSEQUENCES.......................... 119
Possible Legislative or Other Actions
Affecting REITs............................. 119
State, Local and Foreign Taxes................ 119
WHERE YOU CAN FIND MORE INFORMATION............. 119
LEGAL MATTERS................................... 121
EXPERTS......................................... 121
INDEX TO FINANCIAL STATEMENTS OF AIMCO
PROPERTIES, L.P............................... F-1
APPENDIX A: GLOSSARY............................ A-1
APPENDIX B: THIRD AMENDED AND RESTATED AGREEMENT
OF LIMITED PARTNERSHIP OF AIMCO PROPERTIES,
L.P........................................... B-1
</TABLE>
ii
<PAGE> 350
THE COMPANY
Apartment Investment and Management Company ("AIMCO"), a Maryland
corporation formed on January 10, 1994, is a self-administered and self-managed
REIT engaged in the ownership, acquisition, development, expansion and
management of multi-family apartment properties. As of December 31, 1998, we
owned or managed 379,363 apartment units in 2,147 properties located in 49
states, the District of Columbia and Puerto Rico. Based on apartment unit data
compiled by the National Multi Housing Council as of January 1, 1999, we were
the largest owner and manager of multifamily apartment properties in the United
States. As of December 31, 1998, we:
- owned or controlled 63,086 units in 242 apartment properties;
- held an equity interest in 170,243 units in 902 apartment properties; and
- managed 146,034 units in 1,003 apartment properties for third party
owners and affiliates.
We conduct substantially all of our operations through AIMCO Properties,
L.P., a Delaware limited partnership (the "AIMCO Operating Partnership" or the
"Partnership"). Our wholly owned subsidiary, AIMCO-GP, Inc. (the "AIMCO GP") is
the sole general partner of the AIMCO Operating Partnership. Through the AIMCO
GP and another of our wholly owned subsidiaries, AIMCO-LP, Inc. (the "Special
Limited Partner"), as of December 31, 1998, we owned approximately an 83%
interest in the AIMCO Operating Partnership. We manage apartment properties for
third parties and affiliates through unconsolidated subsidiaries that we refer
to as the "management companies." Generally, when we refer to "we," "us" or the
"Company" in this prospectus, we are referring to AIMCO, the AIMCO Operating
Partnership, the management companies and their respective subsidiaries.
Our principal executive offices are located at 1873 South Bellaire Street,
17th Floor, Denver, Colorado 80222, and our telephone number is (303) 757-8101.
1
<PAGE> 351
RISK FACTORS
Before you invest in our securities, you should be aware that there are
various risks, including those described below. You should consider carefully
these risk factors together with all of the other information included in this
prospectus before you decide to purchase our securities.
Some of the information in this prospectus may contain forward-looking
statements. Such statements can be identified by the use of forward-looking
terminology such as "may," "will," "expect," "anticipate," "estimate,"
"continue" or other similar words. These statements discuss future expectations,
contain projections of results of operations or of financial condition or state
other "forward-looking" information. When considering such forward-looking
statements, you should keep in mind the risk factors and other cautionary
statements in this prospectus. The risk factors noted in this section and other
factors noted throughout this prospectus, including certain risks and
uncertainties, could cause our actual results to differ materially from those
contained in any forward-looking statement.
RISKS OF ACQUISITION AND DEVELOPMENT ACTIVITIES
Generally. The selective acquisition, development and expansion of
apartment properties is one component of our growth strategy. However, we can
make no assurance as to our ability to identify or complete transactions in the
future. Although we seek to acquire, develop and expand properties only when
such activities are accretive on a per share basis, such transactions may fail
to perform in accordance with our expectations. When we develop or expand
properties, we are subject to the risks that:
- costs may exceed original estimates;
- projected occupancy and rental rates at the property may not be realized;
- financing may not be available on favorable terms;
- construction and lease-up may not be completed on schedule;
- we may experience difficulty or delays in obtaining necessary zoning,
land-use, building, occupancy and other governmental permits and
authorizations; and
- our return on investment may be lower than expected.
We May Have Difficulty Managing Our Rapid Growth. We have grown rapidly.
Since our initial public offering in July 1994, we have completed numerous
acquisition transactions, expanding our portfolio of owned or managed properties
from 132 apartment properties with 29,343 units to 2,147 apartment properties
with 379,363 units as of December 31, 1998. These acquisitions have included
purchases of properties and interests in entities that own or manage properties,
as well as corporate mergers. Our recent merger with Insignia Financial Group,
Inc. ("Insignia") is our largest acquisition so far. Our ability to successfully
integrate acquired businesses and properties depends on our ability to:
- attract and retain qualified personnel;
- integrate the personnel and operations of the acquired businesses;
- maintain uniform standards, controls, procedures and policies; and
- maintain adequate accounting and information systems.
We can provide no assurance that we will be able to accomplish these goals
and successfully integrate any acquired businesses or properties. If we fail to
successfully integrate such businesses, our results of operations could be
adversely affected.
Litigation Associated with Partnership Acquisitions. We have engaged in,
and intend to continue to engage in, the selective acquisition of interests in
limited partnerships that own apartment properties. In some cases, we have
acquired the general partner of a partnership and then made an offer to acquire
the limited
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partners' interests in the partnership. In these transactions, we are subject to
litigation based on claims that the general partner has breached its fiduciary
duties to its limited partners or that the transaction violates the relevant
partnership agreement. Although we intend to comply with our fiduciary
obligations and relevant partnership agreements, we may incur additional costs
in connection with the defense or settlement of such litigation. In some cases,
such litigation may adversely affect our desire to proceed with, or our ability
to complete, a particular transaction. Such litigation could also have a
material adverse effect on our results of operations.
RISKS ASSOCIATED WITH DEBT FINANCING
Our strategy is generally to incur debt to increase the return on our
equity while maintaining acceptable interest coverage ratios. We seek to
maintain a ratio of free cash flow to combined interest expense and preferred
stock dividends of between 2:1 and 3:1. However, our Board of Directors could
change this strategy at any time and increase our leverage. Our organizational
documents do not limit the amount of debt that we may incur, and we have
significant amounts of debt outstanding. Payments of principal and interest may
leave us with insufficient cash resources to operate our properties or pay
distributions required to be paid in order to maintain our qualification as a
REIT. We are also subject to the risk that our cash flow from operations will be
insufficient to make required payments of principal and interest, and the risk
that existing indebtedness may not be refinanced or that the terms of any
refinancing will not be as favorable as the terms of existing indebtedness. If
we fail to make required payments of principal and interest on any debt, our
lenders could foreclose on the properties securing such debt with a consequent
loss of income and asset value to us. As of September 30, 1998, 95% of the
properties that we own or control and 41% of our assets were encumbered by debt.
On a pro forma basis, giving effect to the recent Insignia merger, as of
September 30, 1998, we had $1,659 million of indebtedness outstanding on a
consolidated basis, of which $1,359 million was secured.
MOODY'S NEGATIVE OUTLOOK FOR AIMCO RATINGS
Recently, Moody's Investors Service revised its outlook for our ratings
from stable to negative to reflect its concerns surrounding our ability to
successfully implement our financial strategy while maintaining a prudent
capital structure as a result of more difficult general capital market
conditions. Moody's noted that our access to the public markets may prove
challenging in light of the volatility in both the equity and capital markets
for REITs and assigned a "ba3" rating to a class of preferred stock proposed to
be issued by us. Moody's indicated that its rating action reflects our
increasing leveraged profile, including high levels of secured debt and
preferred stock, limited financial flexibility and integration risks resulting
from the merger with Insignia. Moody's also noted our high level of encumbered
properties and material investments in loans to highly leveraged partnerships in
which we own a general partnership interest. At the same time, Moody's, Standard
& Poors and Duff & Phelps confirmed their existing ratings on our preferred
stock and senior debt.
INCREASES IN INTEREST RATES MAY INCREASE OUR INTEREST EXPENSE
As of December 31, 1998, approximately $365 million of our debt was subject
to variable interest rates. An increase in interest rates could increase our
interest expense and adversely affect our cash flow and our ability to service
our indebtedness and make distributions.
RISKS OF INTEREST RATE HEDGING ARRANGEMENTS
From time to time, in anticipation of refinancing debt, we enter into
agreements to reduce the risks associated with increases in short term interest
rates. Although these agreements provide us with some protection against rising
interest rates, these agreements also reduce the benefits to us when interest
rates decline. These agreements involve the following risks:
- interest rate movements during the term of the agreement may result in a
loss to us;
- we may be exposed to losses if the hedge is not indexed to the same rate
as the debt anticipated to be incurred; and
- we may incur a loss if the counterparty to the agreement fails to pay.
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COVENANT RESTRICTIONS MAY LIMIT OUR ABILITY TO MAKE PAYMENTS TO OUR INVESTORS
Some of our debt and other securities contain covenants that restrict our
ability to make distributions or other payments to our investors unless certain
financial tests or other criteria are satisfied. In some cases, our subsidiaries
are subject to similar provisions, which may restrict their ability to make
distributions to us. Our primary credit facility with Bank of America National
Trust and Savings Association and BankBoston, N.A. provides that we may make
distributions to our investors during any 12-month period in an aggregate amount
that does not exceed the greater of 80% of our funds from operations for such
period or such amount as may be necessary to maintain our REIT status. This
credit facility prohibits all distributions if certain financial ratios and
tests are not satisfied. Our outstanding classes of preferred stock prohibit the
payment of dividends on our common stock if we fail to pay the dividends to
which the holders of the preferred stock are entitled. If we are unable to pay
dividends, we may fail to qualify as a REIT. This would subject us to corporate
taxation and reduce our ability to make distributions to you.
WE DEPEND ON DISTRIBUTIONS AND OTHER PAYMENTS FROM OUR SUBSIDIARIES
All of our properties are owned, and all of our operations are conducted,
by the AIMCO operating partnership and our other subsidiaries. As a result, we
depend on distributions and other payments from the subsidiaries in order to
satisfy our financial obligations and make payments to our investors. The
ability of our subsidiaries to make such distributions and other payments is
dependent upon their earnings and may be subject to statutory or contractual
limitations. As an equity investor in our subsidiaries, our right to receive
assets upon their liquidation or reorganization will be effectively subordinated
to the claims of their creditors. To the extent that we are recognized as a
creditor of such subsidiaries, our claims would still be subordinate to any
security interest in or other lien on their assets and to any of their debt or
other obligations that are senior to us.
REAL ESTATE INVESTMENT RISKS
Our ability to make payments to our investors depends on our ability to
generate funds from operations in excess of required debt payments and capital
expenditure requirements. Funds from operations and the value of our properties
may be adversely affected by events or conditions which are beyond our control.
Such events or conditions could include:
- the general economic climate;
- competition from other apartment communities and alternative housing;
- local conditions, such as an increase in unemployment or an oversupply of
apartments, that might adversely affect apartment occupancy or rental
rates;
- increases in operating costs (including real estate taxes) due to
inflation and other factors, which may not necessarily be offset by
increased rents;
- changes in governmental regulations and the related costs of compliance;
- changes in tax laws and housing laws, including the enactment of rent
control laws or other laws regulating multifamily housing;
- changes in interest rate levels and the availability of financing; and
- the relative illiquidity of real estate investments.
POSSIBLE ENVIRONMENTAL LIABILITIES
Various Federal, state and local laws subject property owners or operators
to liability for the costs of removal or remediation of certain hazardous
substances released on a property. Such laws often impose liability without
regard to whether the owner or operator knew of, or was responsible for, the
release of the hazardous substances. The presence of, or the failure to properly
remediate, hazardous substances may adversely affect occupancy at contaminated
apartment communities and our ability to sell or borrow against
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contaminated properties. In addition to the costs associated with investigation
and remediation actions brought by governmental agencies, the presence of
hazardous wastes on a property could result in personal injury or similar claims
by private plaintiffs. Various laws also impose, on persons for the cost of
removal or remediation of hazardous or toxic substances at the disposal or
treatment facility. Anyone who arranges for the disposal or treatment of
hazardous substances is potentially liable under said laws. These laws often
impose liability whether or not the person arranging for the disposal ever owned
or operated the disposal facility.
LAWS BENEFITTING DISABLED PERSONS MAY RESULT IN UNANTICIPATED EXPENSES
Under the Americans with Disabilities Act of 1990 (the "ADA"), all places
of public accommodation are required to meet certain Federal requirements
related to access and use by disabled persons. These requirements became
effective in 1992. A number of additional Federal, state and local laws may also
require modifications to our properties, or restrict certain further renovations
of the properties, with respect to access thereto by disabled persons. For
example, the Fair Housing Amendments Act of 1988 (the "FHAA") requires apartment
properties first occupied after March 13, 1990 to be accessible to the
handicapped. Noncompliance with the ADA or the FHAA could result in the
imposition of fines or an award of damages to private litigants and also could
result in an order to correct any non-complying feature, which could result in
substantial capital expenditures. Although we believe that our properties are
substantially in compliance with present requirements, we may incur
unanticipated expenses to comply with the ADA and FHAA.
RISKS RELATING TO REGULATION OF AFFORDABLE HOUSING
As of December 31, 1998, we owned or controlled 12 properties, held an
equity interest in 462 properties and managed for third parties and affiliates
578 properties that benefit from governmental programs intended to provide
housing to people with low or moderate incomes. These programs, which are
usually administered by the United States Department of Housing and Urban
Development ("HUD") or state housing finance agencies, typically provide
mortgage insurance, favorable financing terms or rental assistance payments to
the property owners. As a condition to the receipt of assistance under these
programs, the properties must comply with various requirements, which typically
limit rents to pre-approved amounts. If permitted rents on a property are
insufficient to cover costs, a sale of the property may become necessary, which
could result in a loss of management fee revenue. We usually need to obtain the
approval of HUD in order to manage, or acquire a significant interest in, a
HUD-assisted or HUD-insured property. We can make no assurance that we will
always receive such approval.
THE LOSS OF PROPERTY MANAGEMENT CONTRACTS WOULD REDUCE OUR REVENUES
We manage some properties owned by third parties. In 1988, we received
$13.3 million of revenue from the management of such properties. We may suffer a
loss of revenue if we lose our right to manage these properties or if the rental
revenues upon which our management fees are based declines. In general,
management contracts may be terminated or otherwise lost as a result of:
- a disposition of the property by the owner in the ordinary course or as a
result of financial distress of the property owner;
- the property owner's determination that our management of the property is
unsatisfactory;
- willful misconduct, gross negligence or other conduct that constitutes
grounds for termination; or
- with respect to certain "affordable" properties, termination of such
contracts by HUD or state housing finance agencies, generally at their
discretion.
DEPENDENCE ON CERTAIN EXECUTIVE OFFICERS
Although we have entered into employment agreements with our Chairman and
Chief Executive Officer, Terry Considine, our President, Peter K. Kompaniez and
our Executive Vice President, Steven D. Ira, the loss of any of their services
could have an adverse effect on our operations.
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POSSIBLE CONFLICTS OF INTEREST; TRANSACTIONS WITH AFFILIATES
We have been, and continue to be, involved in various transactions with a
number of our affiliates, including executive officers, directors and entities
in which they own interests. For example, in order to satisfy certain REIT
requirements, Messrs. Considine and Kompaniez directly or indirectly control the
management companies which manage properties for third parties and affiliates.
Although we own a 95% non-voting interest in these management companies, we have
no control over them or their operations. As a result, the management companies
could implement business decisions or policies that are not in our best
interests. We have adopted certain policies designed to minimize or eliminate
the conflicts of interest inherent in these transactions, including a
requirement that a majority of our disinterested directors approve certain
transactions with affiliates. However, there can be no assurance that these
policies will be successful in eliminating the influence of such conflicts.
Furthermore, such policies are subject to change without the approval of our
stockholders.
TAX RISKS
Adverse Consequences of Failure to Qualify as a REIT. Although we believe
that we operate in a manner that enables us to meet the requirements for
qualification as a REIT for Federal income tax purposes, we do not plan to
request a ruling from the IRS that we qualify as a REIT. We have, however,
received an opinion from the law firm of Skadden, Arps, Slate, Meagher & Flom
LLP to the effect that, beginning with our initial taxable year ended December
31, 1994, we were organized in conformity with the requirements for
qualification as a REIT under the Internal Revenue Code and that our actual
method of operation has enabled, and our proposed method of operation will
enable, us to meet the requirements for qualification and taxation as a REIT.
The opinion is expressed as of its date and Skadden, Arps, Slate, Meagher & Flom
LLP has no obligation to advise us of any change in applicable law or of any
change in matters stated, represented or assumed after the date of such opinion.
You should be aware that opinions of counsel are not binding on the IRS or
any court. Our opinion of counsel is based upon certain representations and
covenants made by us regarding our properties and the past, present and future
conduct of our business operations. Furthermore, our opinion of counsel is
conditioned on, and our continued qualification as a REIT will depend on, our
ability to meet, through actual annual operating results, the various REIT
qualification tests, the results of which will not be reviewed by Skadden Arps,
Slate, Meagher & Flom LLP. No assurance can be given that the actual results of
our operations for any one taxable year will satisfy such requirements. Such
requirements are discussed in more detail under the heading "Federal Income
Taxation of AIMCO and AIMCO Stockholders -- General."
If we fail to qualify as a REIT, we would not be allowed a deduction for
dividends paid to our shareholders in computing our taxable income and we would
be subject to Federal income tax at regular corporate rates. We also could be
subject to the Federal alternative minimum tax. Unless we are entitled to relief
under the tax law, we could not elect to be taxed as a REIT for four years
following the year during which we were disqualified. Therefore, if we lose our
REIT status, the funds available for payment to our investors would be reduced
substantially for each of the years involved. See "Federal Income Taxation of
AIMCO and AIMCO Stockholders -- General -- Failure to Qualify." As a result of
the additional tax liability, we might need to borrow funds or liquidate certain
investments on terms that may be disadvantageous to us in order to pay the
applicable tax, and we would not be compelled to make distributions under the
Internal Revenue Code. Also, if we fail to qualify as a REIT, (i) we would be
obligated to repurchase 750,000 shares of our preferred stock at a price of $105
per share, plus accrued and unpaid dividends to the date of repurchase, and (ii)
we would be in default under our primary credit facilities and certain other
loan documents. See "Federal Income Taxation of AIMCO and AIMCO
Stockholders -- Failure to Qualify."
If we acquire a corporation that is not a REIT, we will qualify as a REIT
only if we distribute all of the acquired corporation's "earnings and profits"
by the end of the year in which the acquisition occurs. AIMCO has retained, and
may in the future retain, independent certified public accountants to review the
determination of certain acquired corporation's earnings and profits for purpose
of this requirement. The determination of earnings and profits, however, is
difficult and requires the resolution of technical tax issues. In addition, the
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IRS can consider all taxable years of the acquired corporation as open for
review for purposes of determining the amount of its earnings and profits. Our
failure to distribute an amount equal to the acquired corporation's earnings and
profits on or before the end of the year in which the acquisition occurs would
result in our failure as a REIT.
Effect of Distribution Requirements. As a REIT, we are subject to annual
distribution requirements, which limit the amount of cash we have available for
other business purposes, including amounts to fund our growth. See "Federal
Income Taxation of AIMCO and AIMCO Stockholders -- Annual Distribution
Requirements."
Possible Legislative or Other Actions Affecting REITs. The rules dealing
with Federal income taxation are constantly under review by persons involved in
the legislative process and by the IRS and the U.S. Treasury Department. Changes
to the tax law (which changes may have retroactive application) could adversely
affect our investors. It cannot be predicted whether, when, in what forms, or
with what effective dates, the tax laws applicable to us or our investors will
be changed.
Other Tax Liabilities. Even if we qualify as a REIT, we and our
subsidiaries may be subject to certain Federal, state and local taxes on our
income and property that could reduce operating cash flow.
POSSIBLE ADVERSE CONSEQUENCES OF LIMITS ON OWNERSHIP OF SHARES
Our Charter limits ownership of our common stock by any single shareholder
to 8.7% of the outstanding shares (or 15% in the case of certain pension trusts,
registered investment companies and Mr. Considine). The Charter also prohibits
anyone from buying shares if the purchase would result in us losing our REIT
status. This could happen if a share transaction results in fewer than 100
persons owning all of our shares or results in five or fewer persons, applying
certain broad attribution rules of the Internal Revenue Code, owning 50% or more
of the value of all of our shares. If you or anyone else acquires shares in
excess of the ownership limit or in violation of the ownership requirements of
the Internal Revenue Code for REITs:
- the transfer will be considered null and void;
- we will not reflect the transaction on our books;
- we may institute legal action to enjoin the transaction;
- we may demand repayment of any dividends received by the affected person
on those shares;
- we may redeem the shares;
- the affected person will not have any voting rights for those shares; and
- the shares (and all voting and dividend rights of the shares) will be
held in trust for the benefit of one or more charitable organizations
designated by us.
We may purchase the shares held in trust at a price equal to the lesser of
the price paid by the transferee of the shares or the then current market price.
If the trust transfers any of the shares, the affected person will receive the
lesser of the price he paid for the shares or the then current market price. An
individual who acquires shares that violate the above rules bears the risk that:
- he may lose control over the power to dispose of the shares;
- he may not recognize profit from the sale of such shares if the market
price of the shares increases;
- he may be required to recognize a loss from the sale of such shares if
the market price decreases; and
- he may be required to repay AIMCO any distributions received from AIMCO
as a result of his ownership of such shares.
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OUR CHARTER AND MARYLAND LAW MAY LIMIT THE ABILITY OF A THIRD PARTY TO ACQUIRE
CONTROL OF THE COMPANY
Ownership Limit. The 8.7% ownership limit discussed above may have the
effect of precluding acquisition of control of us by a third party without the
consent of our Board of Directors.
Preferred Stock. Our Charter authorizes our Board of Directors to issue up
to 510,750,000 shares of capital stock. As of February 28, 1999, 484,021,750
shares were classified as Class A Common Stock, 262,500 shares were classified
as Class B Common Stock and 32,160,000 were classified as preferred stock. Under
the Charter, our Board of Directors has the authority to classify and reclassify
any of our unissued shares of capital stock into shares of preferred stock with
such preferences, rights, powers and restrictions as the Board of Directors may
determine. The authorization and issuance of preferred stock could have the
effect of delaying or preventing someone from taking control of us, even if a
change in control were in our shareholders' best interests.
Maryland Business Statutes. As a Maryland corporation, we are subject to
various Maryland laws which may have the effect of discouraging offers to
acquire us and of increasing the difficulty of consummating any such offers,
even if our acquisition would be in our shareholders' best interests. The
Maryland General Corporation Law restricts mergers and other business
combination transactions between us and any person who acquires beneficial
ownership of shares of our stock representing 10% or more of the voting power
without our Board of Directors' prior approval. Any such business combination
transaction could not be completed until five years after the person acquired
such voting power, and only with the approval of shareholders representing 80%
of all votes entitled to be cast and 66% of the votes entitled to be cast,
excluding the interested shareholder. Maryland law also provides that a person
who acquires shares of our stock that represent 20% or more of the voting power
in electing directors will have no voting rights unless approved by a vote of
two-thirds of the shares eligible to vote.
RISKS ASSOCIATED WITH THE YEAR 2000 ISSUE
The Year 2000 Issue is the result of computer programs being written using
two digits rather than four digits to define the applicable year. Any of our
computer programs or hardware that have date-sensitive software or embedded
chips may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, send invoices, or engage in similar normal business
activities. We have determined that we will be required to modify or replace
significant portions of our software and certain hardware so that those systems
will properly utilize dates beyond December 31, 1999. We believe that with
modifications or replacements of existing software and certain hardware, the
Year 2000 Issue can be mitigated. However, if such modifications and
replacements are not made, or are not completed timely, the Year 2000 Issue
could have a material impact on our operations.
Our plan to resolve the Year 2000 Issue involves the following four phases:
assessment, remediation, testing, and implementation. To date, we have fully
completed our assessment of all information systems that could be significantly
affected by the Year 2000, and have begun the remediation, testing and
implementation phases on both hardware and software systems. We are continuing
our assessments with respect to embedded systems. The total cost of our Year
2000 project is estimated at $3.4 million and is being funded through operating
cash flows. To date, we have spent approximately $2.7 million ($0.5 million
expensed and $2.2 million capitalized for new systems and equipment) related to
all phases of the Year 2000 project. Of the total remaining project costs,
approximately $0.4 million is attributable to the purchase of new software and
operating equipment, which will be capitalized. The remaining $0.3 million
relates to repair of hardware and software and will be expensed as incurred.
We have not yet completed all necessary phases of the Year 2000 program. If
we do not complete any additional phases, certain worst case scenarios could
occur. The worst case scenarios include elevators, security and
heating-ventilation-air conditioning systems that read incorrect dates and
operate with incorrect schedules (e.g., elevators will operate on Monday as if
it were Sunday). Although such a change would be annoying to residents, it is
not business critical. In addition, disruptions in the economy generally
resulting from the Year 2000 Issue could also materially adversely affect us. We
could be subject to litigation for
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computer systems failure, for example, equipment shutdown or failure to properly
date business records. The amount of potential liability and lost revenue cannot
be reasonably estimated at this time.
RISKS ASSOCIATED WITH AN INVESTMENT IN OP UNITS
We refer to interests in the AIMCO Operating Partnership as "OP Units." The
Partnership Common Units are referred to as "Common OP Units" and the
Partnership Preferred Units are referred to as "Preferred OP Units." The
agreement of limited partnership of the AIMCO Operating Partnership is referred
to as the "AIMCO Operating Partnership Agreement."
Restrictions on Transferability of OP Units. There is no public market for
our OP Units. In addition, our partnership agreement restricts the
transferability of OP Units. Until the expiration of a one year holding period,
subject to certain exceptions, investors may not transfer OP Units without the
consent of the general partner of the AIMCO Operating Partnership. Thereafter
investors may transfer such OP Units subject to the satisfaction of certain
conditions, including the general partner's right of first refusal. See
"Description of OP Units -- Transfers and Withdrawals." We have no plans to list
our OP Units on a securities exchange. It is unlikely that any person will make
a market in our OP Units, or that an active market for our OP Units will
develop. If a market for our OP Units develops and our OP Units are considered
"readily tradable" on a "secondary market (or the substantial equivalent
thereof)," the AIMCO Operating Partnership would be classified as a publicly
traded partnership for federal income tax purposes. See "-- Tax Treatment is
Dependent on Partnership Status; Publicly Traded Partnership Risks."
Cash Distributions Are Not Guaranteed and May Fluctuate with Partnership
Performance. Although we make quarterly distributions on our OP Units, there can
be no assurance regarding the amounts of available cash that the AIMCO Operating
Partnership will generate or the portion that the general partner will choose to
distribute. The actual amounts of available cash will depend upon numerous
factors, including profitability of operations, required principal and interest
payments on our debt, the cost of acquisitions (including related debt service
payments), our issuance of debt and equity securities, fluctuations in working
capital, capital expenditures, adjustments in reserves, prevailing economic
conditions and financial, business and other factors, some of which may be
beyond the our control. Cash distributions are dependent primarily on cash flow,
including from reserves, and not on profitability, which is affected by non-cash
items. Therefore, cash distributions may be made during periods when the we
record losses and may not be made during periods when we record profits. We make
quarterly distributions to holders of Common OP Units (on a per unit basis) that
generally are equal to the dividends paid on the Class A Common Stock (on a per
share basis). However, such distributions will not necessarily continue to be
equal to such dividends.
Our partnership agreement gives our general partner discretion in
establishing reserves for the proper conduct of the partnership's business that
will affect the amount of available cash. We are required to make reserves for
the future payment of principal and interest under our credit facilities and
other indebtedness. In addition, our credit facilities limit our ability to
distribute cash to holders of our OP Units. As a result of these and other
factors, there can be no assurance regarding our actual levels of cash
distributions on our OP Units, and our ability to distribute cash may be limited
during the existence of any events of default under any of our debt instruments.
The AIMCO GP Manages and Operates the AIMCO Operating Partnership; OP
Unitholders Have Limited Voting Rights. The AIMCO GP manages and operates the
AIMCO Operating Partnership. Unlike the holders of common stock in a
corporation, OP Unitholders have only limited voting rights on matters affecting
the AIMCO Operating Partnership's business. OP Unitholders have no right to
elect the AIMCO GP on an annual or other continuing basis, and the AIMCO GP may
not be removed by OP Unitholders. As a result, OP Unitholders have limited
influence on matters affecting the operation of the AIMCO Operating Partnership
and third parties may find it difficult to attempt to gain control or influence
the activities of the AIMCO Operating Partnership.
We May Issue Additional Partnership Interests, Diluting OP Unitholders'
Interests. We may issue an unlimited number of additional OP Units or other
limited partner interests of the AIMCO Operating Partnership for such
consideration and on such terms as may be established by the AIMCO GP in its
sole
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discretion, in most cases, without the approval of OP Unitholders. The effect of
any such issuance may be to dilute the interests of OP Unitholders in
distributions by the AIMCO Operating Partnership.
OP Unitholders May Not Have Limited Liability in Certain Circumstances. The
limitations on the liability of limited partners for the obligations of a
limited partnership have not been clearly established in some states. If it were
determined that the AIMCO Operating Partnership had been conducting business in
any state without compliance with the applicable limited partnership statute, or
that the right or the exercise of the right by the OP Unitholders as a group to
make certain amendments to the AIMCO Operating Partnership Agreement or to take
other action pursuant to the AIMCO Operating Partnership Agreement constituted
participation in the "control" of the AIMCO Operating Partnership's business,
then an OP Unitholder could be held liable under certain circumstances for the
AIMCO Operating Partnership's obligations to the same extent as the AIMCO GP.
Conflicts of Interest and Fiduciary Responsibility. Conflicts of interest
have arisen and could arise in the future as a result of the relationships
between the AIMCO GP and its affiliates, on the one hand, and the AIMCO
Operating Partnership or any partner thereof, on the other. The directors and
officers of the AIMCO GP have fiduciary duties to manage the AIMCO GP in a
manner beneficial to AIMCO, as the sole stockholder of the AIMCO GP. At the same
time, the AIMCO GP, as general partner, has fiduciary duties to manage the AIMCO
Operating Partnership in a manner beneficial to the AIMCO Operating Partnership
and its partners. The duties of the AIMCO GP, as general partner, to the AIMCO
Operating Partnership and its partners, therefore, may come into conflict with
the duties of the directors and officers of the AIMCO GP to its sole
stockholder, AIMCO. Such conflicts of interest might arise in the following
situations, among others:
- Decisions of the AIMCO GP with respect to the amount and timing of cash
expenditures, borrowings, issuances of additional interests and reserves
in any quarter will affect whether or the extent to which there is
available cash to make distributions in a given quarter.
- Under the terms of its partnership agreement, the AIMCO Operating
Partnership will reimburse the AIMCO GP and its affiliates for costs
incurred in managing and operating the AIMCO Operating Partnership,
including compensation of officers and employees.
- Whenever possible, the AIMCO GP seeks to limit the AIMCO Operating
Partnership's liability under contractual arrangements to all or
particular assets of the AIMCO Operating Partnership, with the other
party thereto to have no recourse against the AIMCO GP or its assets.
- Any agreements between the AIMCO Operating Partnership and the AIMCO GP
and its affiliates will not grant to the OP Unitholders, separate and
apart from the AIMCO Operating Partnership, the right to enforce the
obligations of the AIMCO GP and such affiliates in favor of the AIMCO
Operating Partnership. Therefore, the AIMCO GP, in its capacity as the
general partner of the AIMCO Operating Partnership, will be primarily
responsible for enforcing such obligations.
- Under the terms of the AIMCO Operating Partnership Agreement, the AIMCO
GP is not restricted from causing the AIMCO Operating Partnership to pay
the AIMCO GP or its affiliates for any services rendered on terms that
are fair and reasonable to the AIMCO Operating Partnership or entering
into additional contractual arrangements with any of such entities on
behalf of the AIMCO Operating Partnership. Neither the AIMCO Operating
Partnership Agreement nor any of the other agreements, contracts and
arrangements between the AIMCO Operating Partnership, on the one hand,
and the AIMCO GP and its affiliates, on the other, are or will be the
result of arms-length negotiations.
Unless otherwise provided for in the relevant partnership agreement,
Delaware law generally requires a general partner of a Delaware limited
partnership to adhere to fiduciary duty standards under which it owes its
limited partners the highest duties of good faith, fairness and loyalty and
which generally prohibit such general partner from taking any action or engaging
in any transaction as to which it has a conflict of interest. The AIMCO
Operating Partnership Agreement expressly authorizes the AIMCO GP to enter into,
on behalf of the AIMCO Operating Partnership, a right of first opportunity
arrangement and other conflict avoidance agreements with various affiliates of
the AIMCO Operating Partnership and the AIMCO GP, on such terms
10
<PAGE> 360
as the AIMCO GP, in its sole and absolute discretion, believes are advisable.
The latitude given in the AIMCO Operating Partnership Agreement to the AIMCO GP
in resolving conflicts of interest may significantly limit the ability of an OP
Unitholder to challenge what might otherwise be a breach of fiduciary duty. The
AIMCO GP believes, however, that such latitude is necessary and appropriate to
enable it to serve as the general partner of the AIMCO Operating Partnership
without undue risk of liability.
The AIMCO Operating Partnership Agreement expressly limits the liability of
the AIMCO GP by providing that the AIMCO GP, and its officers and directors will
not be liable or accountable in damages to the AIMCO Operating Partnership, the
limited partners or assignees for errors in judgment or mistakes of fact or law
or of any act or omission if the AIMCO GP or such director or officer acted in
good faith. In addition, the AIMCO Operating Partnership is required to
indemnify the AIMCO GP, its affiliates and their respective officers, directors,
employees and agents to the fullest extent permitted by applicable law, against
any and all losses, claims, damages, liabilities, joint or several, expenses,
judgments, fines and other actions incurred by the AIMCO GP or such other
persons, provided that the AIMCO Operating Partnership will not indemnify for
(i) willful misconduct or a knowing violation of the law or (ii) for any
transaction for which such person received an improper personal benefit in
violation or breach of any provision of the AIMCO Operating Partnership
Agreement.
The provisions of Delaware law that allow the common law fiduciary duties
of a general partner to be modified by a partnership agreement have not been
resolved in a court of law, and the AIMCO GP has not obtained an opinion of
counsel covering the provisions set forth in the AIMCO Operating Partnership
Agreement that purport to waive or restrict the fiduciary duties of the AIMCO GP
that would be in effect under common law were it not for the AIMCO Operating
Partnership Agreement.
Certain Tax Risks Associated with an Investment in the OP Units. For a
general discussion of certain Federal income tax consequences resulting from the
acquisition, holding, exchanging, and otherwise disposing of OP Units, see
"Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders."
Tax Treatment is Dependent on Partnership Status; Publicly Traded
Partnership Risks. The availability to an OP Unitholder of the federal income
tax benefits of an investment in the AIMCO Operating Partnership depends on the
classification of the AIMCO Operating Partnership as a partnership for federal
income tax purposes. In the opinion of our legal counsel, which opinion is based
upon certain assumptions and representations by the AIMCO Operating Partnership
and on opinions of local counsel, with respect to matters of local law, the
AIMCO Operating Partnership will be classified as a partnership for federal
income tax purposes. The opinion is expressed as of its date and our counsel has
no obligation to advise OP Unitholders of any subsequent change in the matters
stated, represented or assumed or any subsequent change in the applicable law.
No advance ruling has been or will be sought from the IRS as to the
classification of the AIMCO Operating Partnership as a partnership. An opinion
of counsel is not binding on the IRS, and no assurance can be given that the IRS
will not challenge the status of the AIMCO Operating Partnership as a
partnership.
If a market for the OP Units develops and the OP Units are considered
"readily tradable" on a "secondary market (or the substantial equivalent
thereof)," the AIMCO Operating Partnership would be classified as a publicly
traded partnership for Federal income tax purposes. We believe and intend to
take the position that the AIMCO Operating Partnership should not be classified
as a publicly traded partnership because (i) our OP Units are not traded on an
established securities market and (ii) our OP Units should not be considered
readily tradable on a secondary market or the substantial equivalent thereof.
The determination of whether interests in a partnership are readily tradable on
a secondary market or the substantial equivalent thereof, however, depends on
various facts and circumstances (including facts that are not within the control
of the AIMCO Operating Partnership). Although the Treasury regulations
promulgated by the U.S. Treasury Department under the Internal Revenue Code (the
"Treasury Regulations") and an IRS pronouncement provide limited safe harbors,
which, if satisfied, will prevent a partnership's interests from being treated
as readily tradable on a secondary market or the substantial equivalent thereof,
the AIMCO Operating Partnership may not have satisfied these safe harbors in its
previous tax years. In addition, because the AIMCO Operating Partnership's
ability to satisfy a safe harbor may involve facts that are not within its
11
<PAGE> 361
control, it is not possible to predict whether the AIMCO Operating Partnership
will satisfy a safe harbor in future tax years. Such safe harbors are not
intended to be substantive rules for the determination of whether partnership
interests are readily tradable on a secondary market or the substantial
equivalent thereof, and consequently, the failure to meet these safe harbors
will not necessarily cause the AIMCO Operating Partnership to be treated as a
publicly traded partnership. No assurance can be given, however, that the IRS
will not assert that partnerships such as the AIMCO Operating Partnership
constitute publicly traded partnerships, or that facts and circumstances will
not develop which could result in the AIMCO Operating Partnership being treated
as a publicly traded partnership.
If the AIMCO Operating Partnership were classified as a publicly traded
partnership, it would nevertheless not be taxable as a corporation as long as
90% or more of its gross income consists of "qualifying income." In general,
qualifying income includes interest, dividends, real property rents (as defined
by section 856 of the Internal Revenue Code) and gain from the sale or
disposition of real property. We believe that more than 90% of the gross income
of the AIMCO Operating Partnership consists of qualifying income and we expect
that more than 90% of its gross income in future tax years will consist of
qualifying income. In such event, even if the AIMCO Operating Partnership were
characterized as a publicly traded partnership, it would not be taxable as a
corporation. If the AIMCO Operating Partnership were characterized as a publicly
traded partnership, however, each OP Unitholder would be subject to special
rules under section 469 of the Internal Revenue Code. See "Federal Income
Taxation of the AIMCO Operating Partnership and OP Unitholders -- Limitations on
Deductibility of Losses; "Passive Activity Loss" Limitation." No assurance can
be given that the actual results of the AIMCO Operating Partnership's operations
for any one taxable year will enable it to satisfy the qualifying income
exception.
If the AIMCO Operating Partnership were classified as an association or
publicly traded partnership taxable as a corporation (because it did not meet
the qualifying income exception discussed above), it would be subject to tax at
the entity level as a regular corporation and OP Unitholders would be subject to
tax in the same manner as stockholders of a corporation. Thus, the AIMCO
Operating Partnership would be subject to federal tax (and possibly state and
local taxes) on its net income, determined without reduction for any
distributions made to the OP Unitholders, at regular federal corporate income
tax rates, thereby reducing the amount of any cash available for distribution to
the OP Unitholders, which reduction could also materially and adversely impact
the liquidity and value of the OP Units. In addition, the AIMCO Operating
Partnership's items of income, gain, loss, deduction and credit would not be
passed through to the OP Unitholders and the OP Unitholders would not be subject
to tax on the income earned by the AIMCO Operating Partnership. Distributions
received by an OP Unitholder from the AIMCO Operating Partnership, however,
would be treated as dividend income for federal income tax purposes, subject to
tax as ordinary income to the extent of current and accumulated earnings and
profits of the AIMCO Operating Partnership, and the excess, if any, as a
nontaxable return of capital to the extent of the OP Unitholder's adjusted tax
basis in his AIMCO Operating Partnership interest (without taking into account
partnership liabilities), and thereafter as gain from the sale of a capital
asset. Classification of the AIMCO Operating Partnership as an association or
publicly traded partnership taxable as a corporation would also result in the
termination of AIMCO's status as a REIT for federal income tax purposes which
would have a material adverse impact on AIMCO. See "Federal Income Taxation of
the AIMCO Operating Partnership and OP Unitholders -- Partnership Status." No
assurances can be given that the IRS would not challenge the status of the AIMCO
Operating Partnership as a "partnership" which is not "publicly traded" for
federal income tax purposes or that a court would not reach a result contrary to
such positions. Accordingly, each prospective investor is urged to consult his
tax advisor regarding the classification and treatment of the AIMCO Operating
Partnership as a "partnership" for federal income tax purposes.
Consequences of Exchanging Property for OP Units. In general, no gain or
loss will be recognized for federal income tax purposes by a person contributing
property to the AIMCO Operating Partnership (the "Contributing Partner") in
exchange for OP Units, and the Contributing Partner will take a tax basis in the
OP Unit received equal to his adjusted tax basis in the contributed property.
Notwithstanding this general rule of nonrecognition, a Contributing Partner may
recognize a gain where the property transferred is subject to liabilities, or
the AIMCO Operating Partnership assumes liabilities in connection with the
transfer of property,
12
<PAGE> 362
and the amount of such liabilities exceeds the amount of the AIMCO Operating
Partnership liabilities allocated to such person as determined immediately after
the transfer. Such excess is treated as a deemed distribution of cash to the
Contributing Partner from the AIMCO Operating Partnership which, in turn, is
treated as a nontaxable return of capital to the extent of the Contributing
Partner's adjusted tax basis in his OP Unit and thereafter as gain from the sale
of such partnership interest. If the Contributing Partner transfers property to
the AIMCO Operating Partnership and the adjusted tax basis of the property
differs from its fair market value, then AIMCO Operating Partnership tax items
must be allocated, for Federal income tax purposes, in a manner such that the
Contributing Partner is charged with the unrealized gain, or benefits from the
unrealized loss, associated with the property at the time of the contribution.
See "Federal Income Taxation of the AIMCO Operating Partnership and OP
Unitholders -- Tax Consequences Upon Contribution of Property to the AIMCO
Operating Partnership."
There are a variety of transactions that the AIMCO Operating Partnership
may in its sole discretion undertake following such contribution with respect to
the contributed property or the debt securing such property which could cause
the Contributing Partner to recognize taxable gain, even though little or no
cash is distributable to him as a result thereof. Such transactions include but
are not limited to (i) the sale of a particular property, which could result in
an allocation of gain only to those OP Unitholders who received OP Units for
such property (even if cash attributable to sale proceeds were distributed
proportionately to all OP Unitholders); and (ii) a reduction in the nonrecourse
debt allocable to property (either because such debt becomes a recourse
liability or is paid off with cash flow, new equity, or proceeds of debt secured
by other property of the AIMCO Operating Partnership), which would result in a
deemed distribution of money to the OP Unitholders who received OP Units for
such property as well as to the other OP Unitholders. See "Federal Income
Taxation of the AIMCO Operating Partnership and OP Unitholders -- Tax
Consequences Upon Contribution of Property to the AIMCO Operating Partnership"
and "Federal Income Taxation of the AIMCO Operating Partnership and OP
Unitholders -- Cash Distributions." The AIMCO Operating Partnership Agreement
grants the AIMCO GP broad authority to undertake such transactions and does not
grant the OP Unitholders affected by these actions any rights to prevent the
AIMCO GP from taking such actions. Even if the AIMCO GP does not intend to sell
or otherwise dispose of contributed property or to reduce the debt, if any,
securing such property within any specified time period after the Contributing
Partner transfers such property to the AIMCO Operating Partnership, it is
possible that future economic, market, legal, tax or other considerations may
cause the AIMCO Operating Partnership to dispose of the contributed property or
to reduce its debt. In this regard, the AIMCO Operating Partnership Agreement
provides that the AIMCO GP, while acting in its capacity as general partner of
the AIMCO Operating Partnership, may, but is not required to, take into account
the tax consequences to the OP Unitholders of its actions in such capacity. The
AIMCO GP intends to make decisions in its capacity as general partner of the
AIMCO Operating Partnership so as to maximize the profitability of the AIMCO
Operating Partnership as a whole, independent of the tax effects on individual
OP Unitholders.
Tax Liability Exceeding Cash Distribution. An OP Unitholder will be
required to pay federal income tax and, in certain cases, state and local income
taxes, on his allocable share of the AIMCO Operating Partnership's income, even
if he receives no cash distributions from the AIMCO Operating Partnership. No
assurance can be given that an OP Unitholder will receive cash distributions
equal to his allocable share of taxable income from the AIMCO Operating
Partnership or even the tax liability to him resulting from that income.
Further, upon the sale of his OP Units, an OP Unitholder may incur a tax
liability in excess of the amount of cash received. See "Federal Income Taxation
of the AIMCO Operating Partnership and OP Unitholders -- Taxation of OP
Unitholders of AIMCO Operating Partnership," and "Federal Income Taxation of the
AIMCO Operating Partnership and OP Unitholders -- Sale, Redemption, or Exchange
of OP Units."
Deductibility of Losses. An OP Unitholder's ability to use his allocable
share of losses, if any, from the AIMCO Operating Partnership at the end of the
taxable year in which the loss is incurred may be limited by certain provisions
of the Internal Revenue Code. See "Federal Income Taxation of the AIMCO
Operating Partnership and OP Unitholders -- Limitations on Deductibility of
Losses."
13
<PAGE> 363
Potential Audits. The AIMCO Operating Partnership's tax return may be
audited, and any such audit could result in an audit of an OP Unitholder's tax
return as well as increased liabilities for taxes because of adjustments
resulting from the audit. No assurance can be given that the AIMCO Operating
Partnership will not be audited by the IRS or various state authorities or that
tax adjustments will not be made. Any adjustments in the AIMCO Operating
Partnership's tax return will lead to adjustments in an OP Unitholder's tax
return and may lead to audits of an OP Unitholder's tax return and adjustments
of items unrelated to the AIMCO Operating Partnership. Each OP Unitholder would
bear the cost of any expenses incurred in connection with an examination of such
OP Unitholder's tax return. See "Federal Income Taxation of the AIMCO Operating
Partnership and OP Unitholders -- Information Returns and Audit Procedures."
State, Local and Other Tax Considerations. In addition to federal income
taxes, the AIMCO Operating Partnership and its OP Unitholders may be subject to
state, local and foreign taxation in various jurisdictions in which the AIMCO
Operating Partnership does business, owns property or resides. See "Other Tax
Consequences -- State, Local and Foreign Taxes." Each prospective investor is
urged to consult its tax advisor in this regard.
Tax Gain or Loss on Disposition of OP Units. An OP Unitholder who sells OP
Units will recognize gain or loss equal to the difference between the amount
realized (including his share of AIMCO Operating Partnership nonrecourse
liabilities) and his adjusted tax basis in such OP Units. Thus, prior AIMCO
Operating Partnership distributions in excess of cumulative net taxable income
in respect of an OP Unit which decreased an OP Unitholder's tax basis in such OP
Unit will, in effect, become taxable income if the OP Unit is sold at a price
greater than the OP Unitholder's tax basis in such OP Units, even if the price
is less than his original cost. A portion of the amount realized (whether or not
representing gain) may be ordinary income.
14
<PAGE> 364
SECURITIES COVERED BY THIS PROSPECTUS
The securities covered by this Prospectus (the "Securities") may be offered
and issued from time to time by AIMCO or the AIMCO Operating Partnership in
connection with acquisitions of businesses, properties, securities or other
assets. In addition, AIMCO may issue (i) shares of its Class A Common Stock, par
value $0.01 per share ("Class A Common Stock") covered hereby upon conversion of
shares its Preferred Stock, par value $0.01 per share ("Preferred Stock"), (ii)
shares of its Preferred Stock covered hereby and shares of its Class A Common
Stock covered hereby, in each case in exchange for Partnership Preferred Units
of the AIMCO Operating Partnership ("Preferred OP Units") tendered for
redemption pursuant to the AIMCO Operating Partnership Agreement and (iii)
shares of its Class A Common Stock covered hereby in exchange for Partnership
Common Units of the AIMCO Operating Partnership ("Common OP Units" and together
with the Preferred OP Units, the "OP Units") tendered for redemption pursuant to
the AIMCO Operating Partnership Agreement.
It is expected that the terms of acquisitions involving the issuance of the
Securities will be determined by direct negotiations with owners or controlling
persons of the business, properties, securities or other assets to be acquired
or through exchange offers. It is expected that any shares of Class A Common
Stock or Common OP Units issued will be valued at prices based on or related to
market prices for the Class A Common Stock at or near the time the terms of such
acquisition are established or at or near the time such Securities are
delivered, or based on average market prices for periods ending at or near such
times. No underwriting discounts or commissions will be paid, although brokers'
or finders' fees may be paid from time to time with respect to specific
acquisitions, and AIMCO or the AIMCO Operating Partnership may issue the
Securities in full or partial payment of such fees. Any person receiving such
fees may be deemed to be an "underwriter," within the meaning of the Securities
Act.
AIMCO and the AIMCO Operating Partnership will not use this Prospectus to
issue securities in connection with any "roll-up transaction" as such term is
defined in Item 901 of Regulation S-K. Prior to offering any Securities in a
transaction that would be excluded from the definition of a "roll-up
transaction" pursuant to the provisions of subparagraph (iv), (vii) or (viii) of
paragraph (c)(2) of Item 901 of Regulation S-K, AIMCO and the AIMCO Operating
Partnership will describe such transaction in a post-effective amendment to the
Registration Statement of which this Prospectus forms a part.
This Prospectus has also been prepared for use by the persons who may
receive from AIMCO or the AIMCO Operating Partnership Securities covered by the
Registration Statement in acquisitions and who may be entitled to offer such
Securities under circumstances requiring the use of a prospectus (such persons
being referred to under this caption as "Securityholders"); provided, however,
that no Securityholder will be authorized to use this Prospectus for any offer
of such Security without first obtaining the consent of AIMCO and the AIMCO
Operating Partnership. AIMCO and the AIMCO Operating Partnership may consent to
the use of this Prospectus for a limited period of time by the Securityholders
and subject to limitations and conditions which may be varied by agreement
between AIMCO and the AIMCO Operating Partnership and the Securityholders.
Resales of such Securities may be made on the NYSE or such other exchange on
which the Securities may be listed, in the over-the-counter market, in private
transactions or pursuant to underwriting agreements.
Agreements with Securityholders permitting use of this Prospectus may
provide that any such offering be effected in an orderly manner through
securities dealers, acting as broker or dealer, selected by AIMCO and the AIMCO
Operating Partnership; that Securityholders enter into custody agreements with
one or more banks with respect to such shares; and that sales be made only by
one or more of the methods described in this Prospectus, as appropriately
supplemented or amended when required. The Securityholders may be deemed to be
underwriters within the meaning of the Securities Act.
When resales are to be made through a broker or dealer selected by AIMCO
and the AIMCO Operating Partnership, it is anticipated that a member firm of the
NYSE may be engaged to act as the Securityholders' agent in the sale of shares
by such Securityholders. The member firm will be entitled to commissions
(including negotiated commissions to the extent permissible). Sales of shares by
the member firm may be made on the NYSE or other exchange from time to time at
prices related to prices then prevailing. Any such
15
<PAGE> 365
sales may be by block trade. Any such member firm may be deemed to be an
underwriter within the meaning of the Securities Act and any commissions earned
by such member firm may be deemed to be underwriting discounts and commissions
under such act.
Upon AIMCO and the AIMCO Operating Partnership being notified by a
Securityholder that any block trade has taken place, a supplementary prospectus,
if required, will be filed pursuant to Rule 424 under the Securities Act,
disclosing the name of the member firm, the number of shares involved, the price
at which such shares were sold by such Securityholder, and the commissions to be
paid by such Securityholder to such member firm.
This Prospectus may be supplemented or amended from time to time to reflect
its use for resales by persons who received Securities for whom AIMCO and the
AIMCO Operating Partnership have consented to the use of this Prospectus in
connection with resales of such Securities.
In addition to the Securities offered hereby, AIMCO and the AIMCO Operating
Partnership may from time to time issue additional Securities through public
offerings or private placements. AIMCO and the AIMCO Operating Partnership may
make such future issuances of Securities in connection with its acquisition of
other businesses, properties, securities or other assets in business combination
transactions or for other purposes.
16
<PAGE> 366
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
THE COMPANY COMPANY COMPANY
------------------------------------------------ PREDECESSORS(1) PRO FORMA(6)
FOR THE ------------------- --------------------
NINE FOR THE FOR THE FOR THE
MONTHS FOR THE YEARS PERIOD PERIOD FOR THE NINE FOR THE
ENDED ENDED JAN. 10, JAN. 1, YEAR MONTHS YEAR
SEPT. 30, DECEMBER 31, 1994 TO 1994 TO ENDED ENDED ENDED
------------- --------------------- DEC. 31, JULY 28, DEC. 31, SEPT. 30, DEC. 31,
1998 1997 1997 1996 1995 1994 1994(3) 1993 1998 1997
----- ----- ----- ----- ----- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Ratio of earning to fixed
charges(2)...................... 1.8:1 1.6:1 1.5:1 1.6:1 2.1:1 5.8:1 N/A 1.2:1 1.5:1 2.1:1
Ratio of earnings to combined
fixed charges and preferred
stock dividends(4)(5)........... 1.4:1 1.5:1 1.5:1 1.6:1 1.5:1 2.0:1 N/A 1.2:1 1.2:1 1.5:1
</TABLE>
- ---------------
(1) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000
shares of Class A Common Stock. On such date, AIMCO and Property Asset
Management, L.L.C., and its affiliated companies and PDI Realty Enterprises,
Inc. (collectively, the "Company Predecessors") engaged in a business
combination and consummated a series of related transactions which enabled
the Company to continue and to expand the property management and related
businesses of the Company Predecessors.
(2) The ratio of earnings to fixed charges for the Company was computed by
dividing earnings by fixed charges. For this purpose, "earnings" consists of
income before minority interests (which includes equity in earnings of
unconsolidated subsidiaries and partnerships only to the extent of dividends
and distributions received) plus fixed charges (other than any interest
which has been capitalized); and "fixed charges" consists of interest
expense (including amortization of loan costs) and interest which has been
capitalized. The ratio of earnings to fixed charges for the Company
Predecessors was computed by dividing earnings by fixed charges. For this
purpose, "earnings" consists of income (loss) before extraordinary items and
income taxes plus fixed charges and "fixed charges" consists of interest
expense (including amortization of loan costs).
(3) The earnings of the Company Predecessors for the period from January 1, 1994
to July 28, 1994 were inadequate to cover fixed charges by $1,463,000.
(4) The ratio of earnings to combined fixed charges and preferred stock
dividends for the Company was computed by dividing earnings by the total of
fixed charges and preferred stock dividends. For this purpose, "earnings"
consists of income before minority interests (which includes equity in
earnings of unconsolidated subsidiaries and partnerships only to the extent
of dividends and distributions received) plus fixed charges (other than any
interest which has been capitalized); "fixed charges" consists of interest
expense (including amortization of loan costs) and interest which has been
capitalized; and "preferred stock dividends" consists of the amount of
pre-tax earnings that would be required to cover preferred stock dividend
requirements.
(5) The Company Predecessors did not have any shares of preferred stock
outstanding during the period from January 1, 1993 through July 28, 1994.
(6) Gives pro forma effect, as of the beginning of the period indicated, to
AIMCO's May 8, 1998 merger with Ambassador Apartments, Inc., AIMCO's October
1, 1998 merger with Insignia Financial Group, Inc. and certain other
transactions completed by AIMCO subsequent to December 31, 1997.
17
<PAGE> 367
SELECTED HISTORICAL FINANCIAL DATA
The following table sets forth selected historical financial and operating
information for the Company. The Selected Historical Financial Data for the nine
months ended September 30, 1998 and 1997 is based on unaudited financial
statements of AIMCO as included in AIMCO's Quarterly Report on Form 10-Q for the
nine months ended September 30, 1998, incorporated by reference herein. Results
for the quarter ended September 30, 1998 are not necessarily indicative of the
results to be expected for a full year. The selected historical financial
information for the years ended December 31, 1997, 1996 and 1995 is based on the
audited financial statements of AIMCO incorporated by reference herein. The
selected historical financial information for the period January 10, 1994 (the
date of AIMCO's inception) through December 31, 1994 for AIMCO and for the
period from January 1, 1994 through July 28, 1994 and for the year ended
December 31, 1993 for the Company's Predecessors is based on the audited
financial statements of AIMCO and the Company's Predecessors, respectively. The
following information should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" set
forth in AIMCO's Annual Report on Form 10-K/A for the year ended December 31,
1997 and in AIMCO's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998 and the historical financial statements of AIMCO and notes
thereto incorporated by reference in this Prospectus.
<TABLE>
<CAPTION>
THE COMPANY'S
THE COMPANY PREDECESSORS(A)
-------------------------------------------------------------------------- ------------------------
FOR THE FOR THE
PERIOD PERIOD
FOR THE FOR THE JAN. 10, JAN. 1, FOR THE
NINE MONTHS ENDED YEAR ENDED 1994 1994 YEAR
SEPTEMBER 30, DECEMBER 31, THROUGH THROUGH ENDED
----------------------- -------------------------------- DEC. 31, JULY 28, DEC. 31,
1998 1997 1997 1996 1995 1994 1994(B) 1993
---------- ---------- ---------- -------- -------- ------------- ------------- --------
(RESTATED)(C) (RESTATED)(C)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND OTHER DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
RENTAL PROPERTY
OPERATIONS:
Rental and other property
revenues................ $ 265,700 $ 127,083 $ 193,006 $100,516 $ 74,947 $ 24,894 $ 5,805 $ 8,056
Property operating
expenses................ (101,600) (50,737) (76,168) (38,400) (30,150) (10,330) (2,263) (3,200)
Owned property management
expenses................ (7,746) (4,344) (6,620) (2,746) (2,276) (711) -- --
Depreciation.............. (59,792) (23,848) (37,741) (19,556) (15,038) (4,727) (1,151) (1,702)
---------- ---------- ---------- -------- -------- -------- ------- --------
Income from Rental
Property Operations..... 96,562 48,154 72,477 39,814 27,483 9,126 2,391 3,154
---------- ---------- ---------- -------- -------- -------- ------- --------
SERVICE COMPANY BUSINESS:
Management fees and other
income.................. 13,968 9,173 13,937 8,367 8,132 3,217 6,533 8,069
Management and other
expenses................ (8,101) (5,029) (9,910) (5,352) (4,953) (2,047) (5,823) (6,414)
Corporate overhead
allocation.............. (196) (441) (588) (590) (581) -- -- --
Amortization of
Goodwill................ -- -- (948) (500) (428) -- -- --
Owner and seller
bonuses................. -- -- -- -- -- -- (204) (468)
Depreciation and
amortization............ (3) (236) (453) (218) (168) (150) (146) (204)
---------- ---------- ---------- -------- -------- -------- ------- --------
Income from service
business................ 5,668 3,467 2,038 1,707 2,002 1,020 360 983
Minority interests in
service company
business................ -- 48 (10) 10 (29) (14) -- --
---------- ---------- ---------- -------- -------- -------- ------- --------
Company's shares of income
from service company
business................ 5,668 3,515 2,028 1,717 1,973 1,006 360 983
---------- ---------- ---------- -------- -------- -------- ------- --------
General and administrative
expenses................ (7,444) (1,408) (5,396) (1,512) (1,804) (977) -- --
Interest income........... 18,244 4,458 8,676 523 658 123 -- --
Interest expense.......... (56,756) (33,359) (51,385) (24,802) (13,322) (1,576) (4,214) (3,510)
Minority interest in other
partnerships............ (1,052) (777) 1,008 (111) -- -- -- --
Equity in earnings of
other partnerships(d)... (5,078) (463) (1,798) -- -- -- -- --
Equity in earnings of
Unconsolidated
Subsidiaries(e)......... 8,413 456 4,636 -- -- -- -- --
Amortization of
Goodwill................ (5,071) (711) -- -- -- -- -- --
---------- ---------- ---------- -------- -------- -------- ------- --------
Income (loss) before gain
on disposition of
property, extraordinary
item, income taxes and
minority interest in
AIMCO Operating
Partnership............. 53,486 19,865 30,246 15,629 14,988 7,702 (1,463) 627
---------- ---------- ---------- -------- -------- -------- ------- --------
Gain on disposition of
property................ 2,783 (169) 2,720 44 -- -- -- --
Extraordinary (loss) --
forgiveness of debt..... -- (269) (269) -- -- -- -- --
Provisions for income
taxes................... -- -- -- -- -- -- (36) (336)
---------- ---------- ---------- -------- -------- -------- ------- --------
Income (loss) before
minority interest in
AIMCO Operating
Partnership............. 56,269 19,427 32,697 15,673 14,988 7,702 (1,499) 291
Minority interest in AIMCO
Operating Partnership... (4,425) (2,612) (4,064) (2,689) (1,613) (599) -- --
---------- ---------- ---------- -------- -------- -------- ------- --------
Net income (loss)......... $ 51,844 $ 16,815 $ 28,633 $ 12,984 $ 13,375 $ 7,103 $(1,499) $ 291
========== ========== ========== ======== ======== ======== ======= ========
</TABLE>
18
<PAGE> 368
<TABLE>
<CAPTION>
THE COMPANY'S
THE COMPANY PREDECESSORS(A)
-------------------------------------------------------------------------- ------------------------
FOR THE FOR THE
PERIOD PERIOD
FOR THE FOR THE JAN. 10, JAN. 1, FOR THE
NINE MONTHS ENDED YEAR ENDED 1994 1994 YEAR
SEPTEMBER 30, DECEMBER 31, THROUGH THROUGH ENDED
----------------------- -------------------------------- DEC. 31, JULY 28, DEC. 31,
1998 1997 1997 1996 1995 1994 1994(B) 1993
---------- ---------- ---------- -------- -------- ------------- ------------- --------
(RESTATED)(C) (RESTATED)(C)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND OTHER DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (END OF
PERIOD):
Real Estate, before
accumulated
depreciation............ $2,685,487 $1,250,239 $1,657,207 $865,222 $477,162 $406,067 $47,500 $ 46,819
Real Estate, net of
accumulated
depreciation............ 2,355,122 1,107,545 1,503,922 745,145 448,425 392,368 32,270 33,701
Total assets.............. 3,121,949 1,608,195 2,100,510 827,673 480,361 416,361 39,042 38,914
Total mortgages and notes
payable................. 1,275,401 661,715 808,503 522,146 268,692 141,315 40,873 41,893
Mandatory redeemable 1994
Cumulative Convertible
Senior Preferred
Stock................... -- -- -- -- -- 96,600 -- --
Stockholder's equity...... 1,521,527 627,426 1,045,300 215,749 169,032 140,319 (9,345) (7,556)
OTHER DATA:
Total owned properties
(end of period)......... 241 109 147 94 56 48 4 4
Total owned apartment
units (end of period)... 62,955 28,773 40,039 23,764 14,453 12,513 1,711 1,711
Equity Owned Properties... 168,746 87,182 83,431 -- -- -- -- --
Units under management
(end of period)......... 154,729 71,038 69,587 19,045 19,594 20,758 29,343 28,422
Basic earnings per common
share................... $ 0.80 $ 0.77 $ 1.09 $ 1.05 $ 0.86 $ 0.42 N/A N/A
Diluted earnings per
common share............ $ 0.79 $ 0.77 $ 1.08 $ 1.04 $ 0.86 $ 0.42 N/A N/A
Distributions paid per
common share............ $ 1.6875 $ 0.925 $ 1.85 $ 1.70 $ 1.66 $ 0.29 N/A N/A
Cash flows provided by
operating activities.... 50,825 53,435 73,032 38,806 25,911 16,825 2,678 2,203
Cash flows used in
investing activities.... (185,453) (314,814) (717,663) (88,144) (60,821) (186,481) (924) (16,352)
Cash flows provided by
(used in) financing
activities.............. 141,221 293,984 668,549 60,129 30,145 176,800 (1,032) 14,114
Funds from
operations(f)........... $ 132,881 $ 49,692 $ 81,155 $ 35,185 $ 25,285 $ 9,391 N/A N/A
Weighted average number of
common shares and OP
Units outstanding(g).... 53,007 24,347 29,119 14,994 11,461 10,920 N/A N/A
</TABLE>
- ---------------
(a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000
shares of Class A Common Stock and issued 966,000 shares of convertible
preferred stock and 513,514 unregistered shares of Class A Common Stock. On
such date, the Company and the Company Predecessors engaged in a business
combination and consummated a series of related transactions which enabled
the Company to continue and expand the property management and related
businesses of the Company Predecessors. The 966,000 shares of convertible
preferred stock and 513,514 shares of Class A Common Stock were repurchased
by AIMCO in 1995.
(b) Represents the period January 1, 1994 through July 28, 1994, the date of
the completion of the business combination with AIMCO.
(c) In the second quarter of 1996, the Company reorganized its ownership of the
service company business. Prior to the 1996 reorganization, the Company
reported the service company business on the equity method. After the 1996
reorganization, the service company business was conducted by a limited
partnership controlled by the Company and was, therefore, consolidated. The
Company has restated the balance sheet as of December 31, 1995 and 1994,
and the statements of income and statements of cash flows for the year
ended December 31, 1995 and the period from January 10, 1994 through
December 31, 1994 to reflect the change. The restatement has no impact on
net income, but does increase third party and affiliate management and
other income, management and other expenses, amortization of management
company goodwill and depreciation of non-real estate assets. In the third
quarter of 1998, the Company reorganized its ownership of the service
company business so that it is now conducted by the management companies,
which are not consolidated.
(d) Represents the Company's share of earnings from 83,431 units in which the
Company purchased an equity interest from the NHP Real Estate Companies.
(e) Represents the Company's equity earnings in the unconsolidated
subsidiaries.
(f) The Company's management believes that the presentation of funds from
operations ("FFO"), when considered with the financial data determined in
accordance with generally accepted accounting principles ("GAAP"), provides
a useful measure of the Company's performance. However, FFO does not
represent cash flow and is not necessarily indicative of cash flow or
liquidity available to the Company, nor should it be considered as an
alternative to net income as an indicator of operating performance. The
Board of Governors of the National Association of Real Estate Investment
Trusts ("NAREIT") defines FFO as net income (loss), computed in accordance
with GAAP, excluding gains and losses from debt restructuring and sales of
property, plus real estate related depreciation and amortization
19
<PAGE> 369
(excluding amortization of financing costs), and after adjustments for
unconsolidated partnerships and joint ventures. AIMCO calculates FFO based
upon the NAREIT definition, adjusted for AIMCO's minority interest in the
AIMCO Operating Partnership, plus amortization of management company
goodwill, the non-cash deferred portion of the income tax provision for
unconsolidated subsidiaries and less the payments of dividends on perpetual
preferred stock. The Company's management believes that presentation of FFO
provides investors with industry-accepted measurements which help
facilitate an understanding of the Company's ability to make required
dividend payments, capital expenditures and principal payments on its debt.
There can be no assurance that AIMCO's basis of computing FFO is comparable
with that of other REITs.
The following is a reconciliation of income before minority interest in the
AIMCO Operating Partnership to FFO:
<TABLE>
<CAPTION>
FOR THE FOR THE
NINE MONTHS FOR THE PERIOD
ENDED YEAR ENDED JANUARY 10,
SEPTEMBER 30, DECEMBER 31, 1994 TO
------------------ --------------------------- DECEMBER 31,
1998 1997 1997 1996 1995 1994
-------- ------- ------- ------- ------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Income before minority interest in
AIMCO
Operating Partnership.............. $ 56,269 $19,427 $32,697 $15,673 $14,988 $ 7,702
Gain on disposition of property.... (2,783) 169 (2,720) (44) -- --
Extraordinary item................. -- 269 269 -- -- --
Real estate depreciation, net of
minority interests............... 56,900 21,052 33,751 19,056 15,038 4,727
Amortization of goodwill........... 7,077 711 948 500 428 76
Equity in earnings of
Unconsolidated Subsidiaries:
Real estate depreciation......... -- 2,689 3,584 -- -- --
Amortization of management
contracts..................... 4,201 430 1,587 -- -- --
Deferred taxes................... 6,134 2,164 4,894 -- -- --
Equity in earnings of other
partnerships:
Real estate depreciation......... 17,379 2,781 6,280 -- -- --
Preferred stock dividends.......... (12,296) -- (135) -- (5,169) (3,114)
-------- ------- ------- ------- ------- -------
Funds from operations.............. $132,881 $49,692 $81,155 $35,185 $25,285 $ 9,391
======== ======= ======= ======= ======= =======
</TABLE>
(g) Generally, after a one-year holding period, Common OP Units may be tendered
for redemption at the option of the holder and, upon tender, may be
acquired by AIMCO for shares of Class A Common Stock at an exchange ratio
of one share of Class A Common Stock for each Common OP Unit (subject to
adjustment).
20
<PAGE> 370
PER SHARE AND PER UNIT DATA
PER SHARE DATA
Set forth below are historical earnings per share of Class A Common Stock,
cash dividends per share of Class A Common Stock and book value per share of
Class A Common Stock data of AIMCO. The data set forth below should be read in
conjunction with the AIMCO audited financial statements and unaudited interim
financial statements, including the notes thereto, which are incorporated by
reference herein.
<TABLE>
<CAPTION>
AIMCO
----------------------------
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
<S> <C> <C>
Basic earnings per weighted average share of Class A Common
Stock outstanding......................................... $ 0.80 $ 1.09
Diluted earnings per weighted average share of Class A
Common Stock outstanding.................................. $ 0.79 $ 1.08
Cash dividends per weighted average share of Class A Common
Stock outstanding......................................... $1.6875 $ 1.85
Book value per share of Class A Common Stock outstanding.... $ 31.71 $22.51
</TABLE>
PER UNIT DATA
Set forth below are historical earnings per Common OP Unit, cash
distributions per Common OP Unit and book value per Common OP Unit. The data set
forth below should be read in conjunction with the AIMCO Operating Partnership
audited financial statements and unaudited interim financial statements,
including the notes thereto, which are incorporated by reference herein.
<TABLE>
<CAPTION>
AIMCO OPERATING PARTNERSHIP
----------------------------
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
<S> <C> <C>
Basic earnings per weighted average Common OP Unit
outstanding............................................... $ 0.80 $ 1.09
Diluted earnings per weighted average Common OP Unit
outstanding............................................... $ 0.79 $ 1.08
Cash distributions per Common OP Unit outstanding........... $1.6875 $ 1.85
Book value per Common OP Unit outstanding................... $ 30.65 $22.33
</TABLE>
21
<PAGE> 371
STOCK PRICES, DIVIDENDS AND DISTRIBUTIONS
The Class A Common Stock is listed and traded on the NYSE under the symbol
"AIV." The following table sets forth, for the periods indicated, the high and
low reported sales prices per share of Class A Common Stock, as reported on the
NYSE Composite Tape, dividends per share paid on Class A Common Stock for the
same periods, and distributions per unit paid on Common OP Units for the same
periods. Common OP Units are subject to restrictions on transfer, and there is
no trading market for the Common OP Units.
<TABLE>
<CAPTION>
COMMON
CLASS A COMMON STOCK OP UNITS
------------------------------ ------------
CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION
----------------- ---- --- -------- ------------
<S> <C> <C> <C> <C>
1999
First Quarter (through March 23, 1999)...... $41 5/8 $35 3/16 $0.6250 $0.6250
1998
Fourth Quarter.............................. 37 3/8 30 0.5625 0.5625
Third Quarter............................... 41 30 15/16 0.5625 0.5625
Second Quarter.............................. 38 7/8 36 1/2 0.5625 0.5625
First Quarter............................... 38 5/8 34 1/4 0.5625 0.5625
1997
Fourth Quarter.............................. 38 32 0.4625 0.4625
Third Quarter............................... 36 3/16 28 1/8 0.4625 0.4625
Second Quarter.............................. 29 3/4 26 0.4625 0.4625
First Quarter............................... 30 1/2 25 1/2 0.4625 0.4625
1996
Fourth Quarter.............................. 28 3/8 21 1/8 0.4250 0.4250
Third Quarter............................... 22 18 3/8 0.4250 0.4250
Second Quarter.............................. 21 18 3/8 0.4250 0.4250
First Quarter............................... 21 1/8 19 3/8 0.4250 0.4250
</TABLE>
Because AIMCO has elected to be taxed for federal income tax purposes as a
REIT, it is required to distribute annually to its stockholders at least 95% of
its "REIT taxable income," which, as defined by the Code and the Treasury
Regulations, is generally equivalent to net taxable ordinary income. AIMCO
measures its economic profitability and pays regular dividends to its
stockholders based on its operating results during the relevant period. The
future payment of dividends by AIMCO will be at the discretion of the AIMCO
Board of Directors and will depend on numerous factors, including financial
condition, capital requirements, the annual distribution requirements under the
provisions of the Code applicable to REITs and such other factors the AIMCO
Board of Directors deems relevant. See "Business of the Company -- Operating and
Financial Strategies; Dividend Policy."
Historically, the AIMCO Operating Partnership has made quarterly
distributions to holders of Common OP Units (on a per unit basis) that are equal
to the dividends paid on the Class A Common Stock (on a per share basis).
Although this is expected to be true in the future, there can be no assurance
that distributions on the Common OP Units will always be equal to the dividends
on the Class A Common Stock. See "Risk Factors -- Risks Associated With an
Investment in OP Units."
22
<PAGE> 372
BUSINESS OF THE COMPANY
Apartment Investment and Management Company ("AIMCO"), a Maryland
corporation formed on January 10, 1994, is a self-administered and self-managed
REIT engaged in the ownership, acquisition, development, expansion and
management of multi-family apartment properties. As of December 31, 1998, we
owned or managed 379,363 apartment units in 2,147 properties located in 49
states, the District of Columbia and Puerto Rico. On July 24, 1994, AIMCO
completed its initial public offering and engaged in a business combination and
consummated a series of related transactions which enabled it to continue and
expand the property management and related businesses of Property Asset
Management, L.L.C., Limited Liability Company, and its affiliated companies, and
PDI Realty Enterprises, Inc. (collectively, the "AIMCO Predecessors"). Based on
apartment unit data compiled by the National Multi Housing Council as of January
1, 1999, we were the largest owner and manager of multifamily apartment
properties in the United States. As of December 31, 1998, we:
- owned or controlled 63,086 units in 242 apartment properties;
- held an equity interest in 170,243 units in 902 apartment properties; and
- managed 146,034 units in 1,003 apartment properties for third party
owners and affiliates.
We conduct substantially all of our operations through our operating
partnership, AIMCO Properties, L.P. Through wholly owned subsidiaries, we act as
the sole general partner of the AIMCO Operating Partnership. As of December 31,
1998, we owned approximately an 83% interest in the AIMCO Operating Partnership.
We manage apartment properties for third parties and affiliates through
unconsolidated subsidiaries that we refer to as the "management companies."
Generally, when we refer to "we," "us" or the "Company" in this prospectus, we
are referring to AIMCO, the AIMCO Operating Partnership, the management
companies and their respective subsidiaries.
The Company's principal executive offices are located at 1873 South
Bellaire Street, Suite 1700, Denver, Colorado 80222-4348 and its telephone
number is (303) 757-8101.
OPERATING AND FINANCIAL STRATEGIES
The Company's operating and financing strategies to attempt to meet its
objective of providing long-term, predictable funds from operations ("FFO") per
share of Class A Common Stock include the following:
- Acquisition of Properties at Less Than Replacement Cost. AIMCO attempts
to acquire properties at a significant discount to their replacement
cost.
- Geographic Diversification. AIMCO operates in 49 states, the District of
Columbia and Puerto Rico. This geographic diversification insulates the
Company, to some degree, from inevitable downturns in any one market.
- Market Growth. The Company seeks to operate in markets where population
and employment growth are expected to exceed the national average and
where it believes it can become a regionally significant owner or manager
of properties. For the period from 1996 through 1999, annual population
and employment growth rates in AIMCO's five largest regional markets are
forecasted to be 2.2% and 3.6%, respectively.
- Product Diversification. The Company's portfolio of apartment properties
spans a wide range of apartment community types, both within and among
markets.
- Capital Replacement. AIMCO believes that the physical condition and
amenities of its apartment communities are important factors in its
ability to maintain and increase rental rates. The Company allocates
approximately $300 annually per owned apartment unit for capital
replacements and reserves unexpended amounts for future capital
replacements.
- Debt Financing. AIMCO's strategy is generally to incur debt to increase
its return on equity while maintaining acceptable interest coverage
ratios. AIMCO seeks to maintain a ratio of free cash flow to
23
<PAGE> 373
combined interest expense and preferred stock dividends of between 2:1
and 3:1, and a ratio of earnings before interest, income taxes,
depreciation and amortization (with certain adjustments and after a
provision of approximately $300 per owned apartment unit) to debt service
of at least 2:1, and to match debt maturities to the character of the
assets financed. For the year ended December 31, 1998, the Company was
within these targets. The Company uses predominantly long-term,
fixed-rate and self-amortizing non-recourse debt in order to avoid the
refunding or repricing risks of short-term borrowings. The Company also
uses short-term debt financing to fund acquisitions and generally expects
to refinance such borrowings with proceeds from equity offerings or
long-term debt financings. As of December 31, 1998, approximately 22% of
AIMCO's outstanding debt was short-term debt and 78% was long-term debt.
- Dispositions. From time to time, the Company sells properties that do not
meet its return on investment criteria or that are located in areas where
AIMCO does not believe that the long-term neighborhood values justify the
continued investment in the properties.
- Dividend Policy. AIMCO pays dividends on its Class A Common Stock to
share its profitability with its stockholders. The Company distributed
65.8%, 66.5% and 72.3% of FFO to holders of Class A Common Stock for the
years ended December 31, 1998, 1997 and 1996, respectively. It is the
present policy of the Board of Directors to increase the dividend
annually in an amount equal to one-half of the projected increase in FFO,
adjusted for capital replacements, subject to minimum distribution
requirements to maintain its REIT status.
GROWTH STRATEGIES
The Company seeks growth through two primary sources -- acquisitions and
internal expansion.
Acquisition Strategies.
The Company believes its acquisition strategies will increase profitability
and predictability of earnings by increasing its geographic diversification,
economies of scale and opportunities to provide ancillary services to tenants at
its properties. Since AIMCO's initial public offering in July 1994, the Company
has completed numerous acquisition transactions, expanding its portfolio of
owned or managed properties from 132 apartment properties with 29,343 units to
2,147 apartment properties with 379,363 units as of December 31, 1998. The
Company acquires additional properties primarily in three ways:
- Direct Acquisitions. AIMCO may directly, including through mergers and
other business combinations, acquire individual properties or portfolios
of properties and controlling interests in entities that own or control
such properties or portfolios. To date, a significant portion of AIMCO's
growth has resulted from the acquisition of other companies that owned or
controlled properties.
- Acquisition of Managed Properties. AIMCO believes that its property
management operations support its acquisition activities. Since AIMCO's
initial public offering, the Company has acquired from its managed
portfolio 15 properties comprising 4,432 units for total consideration of
$155.4 million.
- Increasing its Interest in Partnerships. For properties where AIMCO owns
a general partnership interest in the property-owning partnership, the
Company may seek to acquire, subject to its fiduciary duties, the
interests in the partnership held by third parties for cash or, in some
cases, in exchange for OP Units. AIMCO has completed tender offers with
respect to 178 partnerships and has purchased additional interests in
such partnerships for cash and for OP Units.
Internal Growth Strategies.
The Company pursues internal growth primarily through the following
strategies:
- Revenue Increases. The Company increases rents where feasible and seeks
to improve occupancy rates. AIMCO's "same store" revenues, rental and
other property revenues from the properties owned
24
<PAGE> 374
or controlled by AIMCO (based on properties owned from period to period
and applying AIMCO's ownership interests in these properties) have grown
by 3.3% from the fiscal year ended December 31, 1995 to the fiscal year
ended December 31, 1996, by 2.1% from the fiscal year ended December 31,
1996 to the fiscal year ended December 31, 1997, and by 4.7% from the
fiscal year ended December 31, 1997 to the fiscal year ended December 31,
1998.
- Redevelopment of Properties. The Company believes redevelopment of
selected properties in superior locations provides advantages over
development of new properties. AIMCO believes that redevelopment
generally allows the Company to maintain rents comparable to new
properties and, compared to development of new properties, can be
accomplished with relatively lower financial risk, in less time and with
reduced delays due to governmental regulation.
- Expansion of Properties. The Company believes that expansion within or
adjacent to properties already owned or managed by the Company also
provides growth opportunities at lower risk than new development. Such
expansion can offer cost advantages to the extent common area amenities
and on-site management personnel can service the property expansions.
- Conversion of Affordable Properties; Improvement of Performance. The
Company believes that it may be able to significantly increase its return
from its portfolio of affordable properties by improving operations at
some of its properties or by converting some of these properties to
conventional properties.
- Ancillary Services. The Company's management believes that its ownership
and management of properties provides it with unique access to a customer
base for the sale of additional services which generate incremental
revenues. The Company currently provides cable television, telephone
services, appliance rental, renters' insurance and carport, garage and
storage space rental at certain properties.
- Controlling Expenses. Cost reductions are accomplished by exploiting
economies of scale. As a result of the size of its portfolio and its
creation of regional concentrations of properties, the Company has the
ability to leverage fixed costs for general and administrative
expenditures and certain operating functions, such as insurance,
information technology and training, over a larger property base.
PROPERTY MANAGEMENT STRATEGIES
AIMCO seeks to improve the operating results from its property management
business by, among other methods, combining centralized financial control and
uniform operating procedures with localized property management decision-making
and market knowledge. AIMCO's management operations are organized into four
Divisions, each supervised by a Division Vice President, who has, on average, 18
years of experience in apartment management.
ACCOUNTING POLICIES AND DEFINITIONS
The Company has the following accounting policies and definitions:
Funds from Operations. The Board of Governors of NAREIT defines FFO as net
income (loss), computed in accordance with generally accepted accounting
principles, excluding gains and losses from debt restructuring and sales of
property, plus real estate related depreciation and amortization (excluding
amortization of financing costs), and after adjustments for unconsolidated
partnerships and joint ventures. The Company calculates FFO in a manner based
upon the NAREIT definition, as adjusted for minority interest in the AIMCO
Operating Partnership, plus amortization of management company goodwill, the
non-cash deferred portion of the income tax provision for unconsolidated
subsidiaries and less the payment of dividends on perpetual preferred stock. The
Company's management believes that presentation of FFO provides investors with
industry accepted measurements which help facilitate understanding of the
Company's ability to meet required dividend payments, capital expenditures, and
principal payments on its debt. There can be no assurance that the Company's
basis of computing FFO is comparable with that of other REITs.
25
<PAGE> 375
Capital Replacements. The Company capitalizes spending for items which
generally cost more than $250 and have a useful life of more than one year, such
as carpet replacement, new appliances, new roofs or parking lot repaving.
Capitalized spending which maintains a property is termed a "Capital
Replacement." In the experience of the Company's management, this spending is
better considered a recurring cost of preserving an asset rather than an
additional investment.
Consolidation. For financial reporting purposes, the Company consolidates
the results of those corporations in which it owns a majority of the outstanding
voting stock, and those limited partnerships and limited liability companies in
which it owns both a general partnership or managing member interest and
controls investment decisions with respect to the underlying assets. The Company
generally has a 30% to 51% economic interest in such entities. Entities in which
the Company has less than a 30% economic interest or limited control are
accounted for on the equity method. The Company policy is generally to hold
Class C properties and affordable properties (substantially all of which are
Class C properties) in unconsolidated partnerships. The Company accounts for
these properties on the equity method in accordance with GAAP.
POLICIES OF THE COMPANY WITH RESPECT TO CERTAIN OTHER ACTIVITIES
The following is a discussion of certain other investment objectives and
policies, financing policies and other policies of the Company. These policies
are determined by the officers and directors of AIMCO and may be amended or
revised from time to time at their discretion without a vote of AIMCO's
stockholders. As the sole general partner of the AIMCO Operating Partnership,
AIMCO also determines the investment policies of the AIMCO Operating
Partnership.
Investment in Others. The Company may also participate with other entities
in property ownership, through joint ventures or other types of co-ownership.
Any such equity investment may be subject to existing mortgage financing and
other indebtedness which would have priority over the equity of the Company in
that property.
Securities of or Interests in Persons Primarily Engaged in Real Estate
Activities. The Company may also acquire securities of or interests in persons
engaged in the acquisition, redevelopment and/or management of multifamily
apartment properties.
Investments in Real Estate Mortgages. While the Company generally
emphasizes direct real estate investments, it may, in its discretion and subject
to the percentage ownership limitations and gross income tests necessary for
REIT qualification, invest in mortgage and other indirect real estate interests,
including securities of other real estate investment trusts. The Company has not
previously invested in mortgages or securities of other real estate investment
trusts and the Company does not presently intend to invest to a significant
extent in mortgages or securities of other real estate investment trusts.
Operating and Financing Policies. The Company seeks to maintain a ratio of
EBITDA (less a provision of approximately $300 per owned apartment unit) to debt
(the "Debt Coverage Ratio") of at least 2 to 1, and to match debt maturities to
the character of the assets financed. See "-- Operating and Financial
Strategies -- Debt Financing." The Company, however, may from time to time
re-evaluate borrowing policies in light of then current economic conditions,
relative costs of debt and equity capital, market values of properties, growth
and acquisition opportunities and other factors. The Company may modify its
borrowing policy and may increase or decrease its Debt Coverage Ratio policy.
To the extent that the AIMCO Board of Directors determines to seek
additional capital, the Company may raise such capital through additional equity
offerings, debt financing or retention of cash flow (after consideration of
provisions of the Code requiring the distribution by a REIT of a certain
percentage of taxable income and taking into account taxes that would be imposed
on undistributed taxable income), or through a combination of these sources. The
Company presently anticipates that any additional borrowings will be made
through the AIMCO Operating Partnership, although AIMCO might incur borrowings
that would be reloaned to the AIMCO Operating Partnership. The AIMCO Operating
Partnership cannot incur indebtedness that is recourse to AIMCO without AIMCO's
approval. AIMCO may approve the AIMCO Operating Partnership's incurring
additional debt that is recourse to the AIMCO Operating Partnership. Borrowings
may
26
<PAGE> 376
be unsecured or may be secured by any or all assets of AIMCO, the AIMCO
Operating Partnership, or any existing or new property and may have full or
limited recourse to all or any portion of the assets of AIMCO, the AIMCO
Operating Partnership, or any existing or new property.
The Company has not established any limit on the number or amount of
mortgages that may be placed on any single property or on its portfolio as a
whole.
AIMCO may also determine to issue securities senior to the Class A Common
Stock, including preferred stock and debt securities (either of which may be
convertible into capital stock or be accompanied by warrants to purchase capital
stock). The Company may also determine to finance acquisitions through the
exchange of properties or issuance of additional OP Units, shares of Class A
Common Stock or other securities.
If the AIMCO Board of Directors determines to raise additional equity
capital, the AIMCO Board of Directors has the authority, without stockholder
approval, to issue additional shares of Class A Common Stock or other capital
stock (including securities senior to the Class A Common Stock) in any manner
(and on such terms and for such consideration) it deems appropriate, including
in exchange for property. Such issuances might cause a dilution of a
stockholder's investment in AIMCO. If the AIMCO Board of Directors determines to
raise additional equity capital to fund investments by the AIMCO Operating
Partnership, AIMCO will contribute such funds to the AIMCO Operating Partnership
as a contribution to capital and purchase of additional general partnership
interests. AIMCO may issue additional shares of Class A Common Stock in
connection with the acquisition of OP Units that are tendered to the AIMCO
Operating Partnership for redemption.
The AIMCO Board of Directors also has the authority to cause the AIMCO
Operating Partnership to issue additional OP Units in any manner (and on such
terms and for such consideration) as it deems appropriate, including in exchange
for property. Any such new OP Units will be redeemable at the option of the
holder, which redemption AIMCO intends to cause to be made in Class A Common
Stock pursuant to the redemption rights.
Conflict of Interest Policies. The Company has adopted certain policies
designed to minimize or eliminate conflicts of interests between the Company and
its executive officers and directors. Without the approval of a majority of the
disinterested directors, the Company will not (i) acquire from or sell to any
director, officer or employee of the Company or any entity in which a director,
officer or employee of the Company owns more than a 1% interest, or acquire from
or sell to any affiliate of any of the foregoing, any assets or other property
of the Company, (ii) make any loan to or borrow from any of the foregoing
persons, or (iii) engage in any material transaction with the foregoing. In
addition, the Company has entered in to employment agreements with Messrs.
Considine, Kompaniez and Ira which include provisions intended to eliminate or
minimize potential conflicts of interest, and which provide that those persons
will be prohibited from engaging directly or indirectly in the acquisition,
development, operation or management of other multifamily apartment properties
outside of the Company, except with respect to certain investments currently
held by such persons, as to which investments those persons have committed to an
orderly liquidation. There can be no assurance, however, that these policies
always will be successful in eliminating the influence of such conflicts, and if
they are not successful, decisions could be made that might fail to reflect
fully the interests of AIMCO's stockholders as a whole.
Policies with Respect to Other Activities. The Company has authority to
offer shares of its capital stock or other securities and to repurchase or
otherwise reacquire its shares or any other securities, has done so, and may
engage in such activities in the future. From its inception, the Company has
made loans aggregating $5.1 million to certain entities owning properties
subsequently acquired by the Company. No balances remain outstanding on such
loans. In the same period, the Company has made loans aggregating $76.5 million
to its officers for the purchase of Class A Common Stock and $5.1 million to its
officers and other entities to acquire interests in subsidiaries of the Company.
The outstanding balances on such loans as of August 31, 1998 were $42.7 million
and $3.1 million, respectively. Messrs. Considine and Kompaniez have repaid in
part, using $2.0 million in proceeds distributed to them from the sale of NHP
Common Stock by AIMCO/NHP Holdings, Inc. ("ANHI") to AIMCO, outstanding
promissory notes payable by them to ANHI in an aggregate amount of $3.2 million,
which loan was made to them by ANHI to acquire their interest in ANHI.
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In addition, the Company from time to time advances amounts for relocation and
other expenses. The Company has not engaged in underwriting securities of other
issuers. Each of AIMCO and the AIMCO Operating Partnership intend to make
investments in such a way that it will not be treated as an investment company
under the Investment Company Act of 1940, as amended.
The Company may invest in the securities of other issuers engaged in the
ownership, acquisition or management of multifamily apartment properties for the
purpose of exercising control.
At all times, the Company intends to make investments in such a manner as
to be consistent with the requirements of the Code for AIMCO to qualify as a
REIT unless, because of changing circumstances or changes in the Code (or in
Treasury Regulations), the AIMCO Board of Directors determines that it is no
longer in the best interest of AIMCO to qualify as a REIT.
AIMCO, as a REIT, is required to distribute annually to holders of Class A
Common Stock at least 95% of its "REIT taxable income," which, as defined by the
Code and the Treasury Regulations, is generally equivalent to net taxable
ordinary income. AIMCO measures its economic profitability, and intends to pay
regular dividends to its stockholders, based on earnings during the relevant
period. However, the future payment of dividends by AIMCO will be at the
discretion of the AIMCO Board of Directors and will depend on numerous factors,
including AIMCO's financial condition, its capital requirements, the annual
distribution requirements under the provisions of the Code applicable to REITs
and such other factors as the AIMCO Board deems relevant.
CONTRIBUTION AND MANAGEMENT AGREEMENT
In order to maintain AIMCO's qualification as a REIT under the Code, AIMCO
has acquired, and may in the future acquire, interests in entities in which the
AIMCO Operating Partnership does not own any interest (the "QRSs"). AIMCO and
the AIMCO Operating Partnership have entered into a Contribution and Management
Agreement (the "Management Agreement"), pursuant to which the AIMCO Operating
Partnership has acquired from AIMCO, in exchange for interests in the AIMCO
Operating Partnership, the economic benefits of the assets owned by the QRSs,
and AIMCO has granted the AIMCO Operating Partnership certain rights with
respect to the assets owned by the QRSs. Under the Management Agreement, the
AIMCO Operating Partnership has a right of first refusal to acquire the assets
owned by the QRSs for no additional consideration. Under the Management
Agreement, AIMCO is obligated to contribute to the AIMCO Operating Partnership
all dividends, distributions and other proceeds received from the QRSs
(excluding distributions received in respect of any interests in the AIMCO
Operating Partnership).
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The Company operates in one industry segment, the ownership and management
of real estate properties. See the consolidated financial statements and notes
thereto included elsewhere in or incorporated into this Registration Statement
for financial information relating to the Company and the AIMCO Operating
Partnership. Properties owned by the QRSs and properties in which the QRSs have
ownership interests are included in the AIMCO Properties.
COMPETITION
There are numerous housing alternatives that compete with the Company's
Owned Properties and Managed Properties in attracting residents. The Company's
properties compete directly with other multi-family rental apartments and single
family homes that are available for rent in the markets in which the Company's
properties are located. The Company's properties also compete for residents with
new and existing homes and condominiums. The number of competitive properties in
a particular area could have a material effect on the Company's ability to lease
apartment units at its properties and on the rents charged. The Company competes
with numerous real estate companies in acquiring, developing and managing
multi-family apartment properties and seeking tenants to occupy the AIMCO
Properties. In addition, the Company competes with numerous property management
companies in the markets where the Managed Properties are located.
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REGULATION
General. Multifamily apartment properties are subject to various laws,
ordinances and regulations, including regulations relating to recreational
facilities such as swimming pools, activity centers and other common areas.
Changes in laws increasing the potential liability for environmental conditions
existing on properties or increasing the restrictions on discharges or other
conditions, as well as changes in laws affecting development, construction and
safety requirements, may result in significant unanticipated expenditures, which
would adversely affect the Company's cash flows from operating activities. In
addition, future enactment of rent control or rent stabilization laws or
regulations or other laws or regulations regulating multi-family housing may
reduce rental revenue or increase operating costs in particular markets.
Restrictions Imposed by Laws Benefitting Disabled Persons. Under the
Americans with Disabilities Act of 1990 (the "ADA"), all places of public
accommodation are required to meet certain Federal requirements related to
access and use by disabled persons. These requirements became effective in 1992.
A number of additional Federal, state and local laws exist which also may
require modifications to the Owned Properties, or restrict certain further
renovations thereof, with respect to access thereto by disabled persons. For
example, the Fair Housing Amendments Act of 1988 (the "FHAA") requires apartment
properties first occupied after March 13, 1990 to be accessible to the
handicapped. Noncompliance with the ADA or the FHAA could result in the
imposition of fines or an award of damages to private litigants and also could
result in an order to correct any non-complying feature, which could result in
substantial capital expenditures. Although management believes that the Owned
Properties are substantially in compliance with present requirements, if the
Owned Properties are not in compliance, the Company is likely to incur
additional costs to comply with the ADA and the FHAA.
HUD Enforcement and Limited Denials. A significant number of the affordable
units included in the AIMCO Properties are subject to regulation by the U.S.
Department of Housing and Urban Development ("HUD"). HUD has the authority to
suspend or deny property owners and managers from participation in HUD programs
with respect to additional assistance within a geographic region through
imposition of a limited denial of participation ("LDP") by any HUD office or
nationwide for violations of HUD regulatory requirements.
Environmental Matters. Under federal, state and local environmental laws
and regulations, a current or previous owner or operator of real property may be
required to investigate and clean up a release of hazardous substances at such
property, and may, under such laws and common law, be held liable for property
damage and other costs incurred by third parties in connection with such
releases. The liability under certain of these laws has been interpreted to be
joint and several unless the harm is divisible and there is a reasonable basis
for allocation of responsibility. The failure to remediate the property properly
may also adversely affect the owner's ability to sell or rent the property or to
borrow using the property as collateral. In connection with its ownership,
operation and management of the AIMCO Properties, the Company could be
potentially liable for environmental liabilities or costs associated with its
properties or properties it may in the future acquire or manage.
INSURANCE
Management believes that the Owned Properties are covered by adequate fire,
flood and property insurance provided by reputable companies and with
commercially reasonable deductibles and limits.
EMPLOYEES
The Company has a staff of employees performing various acquisition,
redevelopment and management functions. The Company has approximately 13,500
employees, most of whom are employed at the property level. None of the
employees are represented by a union, and the Company has never experienced a
work stoppage. The Company believes it maintains satisfactory relations with its
employees.
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1998 DEVELOPMENTS
Ambassador Apartments Acquisition. On May 8, 1998, Ambassador was merged
with and into AIMCO, with AIMCO being the surviving corporation. The purchase
price of $713.6 million was comprised of $90.3 million in cash, $372.0 million
of assumed debt and up to 6,578,833 shares of Class A Common Stock valued at
$251.3 million. Pursuant to the Ambassador merger agreement, all outstanding
shares of Ambassador common stock were converted into the right to receive AIMCO
Class A Common Stock, at a conversion ratio of 0.553. Concurrently, all
outstanding options to purchase Ambassador common stock were converted into cash
or options to purchase AIMCO Class A Common Stock, at the same conversion ratio.
Contemporaneously with the consummation of the Ambassador merger, a subsidiary
of the AIMCO Operating Partnership merged with Ambassador's operating
partnership and each outstanding unit of limited partnership interest in the
Ambassador operating partnership was converted into the right to receive 0.553
OP Units. Ambassador was a self-administered and self-managed real estate
investment trust engaged in the ownership and management of garden-style
apartment properties leased primarily to middle income tenants. Ambassador owned
52 apartment communities with a total of 15,728 units located in Arizona,
Colorado, Florida, Georgia, Illinois, Tennessee and Texas, and managed one
property containing 252 units for an unrelated third party.
Insignia Merger. On October 1, 1998, Insignia Financial Group, Inc., a
Delaware corporation, was merged with and into AIMCO, with AIMCO being the
surviving corporation. The purchase price of $1,125.7 million was comprised of
approximately 8.4 million shares of Class E Cumulative Convertible Preferred
Stock (the "Class E Preferred Stock") valued at $301.2 million, $670.1 million
in assumed debt and liabilities (including the $50 million special dividend,
assumed liabilities of Insignia Properties Trust and transaction costs), $149.5
million in assumed mandatorily redeemable convertible preferred securities, and
$4.9 million in cash. The merger was accounted for as a purchase. The Class E
Preferred Stock entitled the holders thereof to receive the same cash dividends
per share as holders of Class A Common Stock. In addition, on January 15, 1999,
holders of Class E Preferred Stock became entitled to receive a special dividend
in an aggregate amount of approximately $50 million, and all outstanding shares
of Class E Preferred Stock automatically converted into an equal number of
shares of Class A Common Stock.
As a result of the Insignia merger, AIMCO acquired; (i) Insignia's
interests in Insignia Properties Trust, a Maryland REIT ("IPT"), which was a
majority owned subsidiary of Insignia; (ii) Insignia's interest in Insignia
Properties, L.P., IPT's operating partnership ("IPLP"); (iii) 100% of the
ownership of the Insignia entities that provide multifamily property management
and partnership administrative services; (iv) Insignia's interest in multifamily
co-investments; (v) Insignia's ownership of subsidiaries that control
multifamily properties not included in IPT; (vi) Insignia's limited partner
interests in public and private syndicated real estate limited partnerships; and
(vii) assets incidental to the foregoing businesses (collectively, the "Insignia
Multifamily Business").
IPT Merger. As a result of the Insignia merger, AIMCO acquired
approximately 51% of the outstanding shares of beneficial interest of IPT. On
February 26, 1999, IPT was merged into AIMCO. Pursuant to the merger, the
approximately 11.6 million outstanding shares of IPT that were not held by AIMCO
were converted into the right to receive 0.3601 shares of AIMCO Class A Common
Stock, resulting in the issuance of approximately 4.3 million shares of AIMCO
Class A Common Stock, valued at approximately $158.8 million.
Individual Property Acquisitions. During the year ended December 31, 1998,
the Company purchased or acquired control of 30 properties consisting of 6,707
apartment units for total consideration of $316.5 million. The Company's
purchase price consisted of $172.3 million in assumed mortgage obligations,
$96.0 million in cash, and $48.2 million of OP Units.
Tender Offers. During 1998, the Company made separate offers to the limited
partners of 308 partnerships to acquire their limited partnership interests. The
Company paid approximately $83 million in cash and OP Units to acquire limited
partnership interests pursuant to the offers.
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Property Dispositions. In 1998, the Company sold eleven properties for an
aggregate of $85.3 million. Cash proceeds to the Company from the sales were
used to repay a portion of the Company's outstanding short-term indebtedness.
The results of operations of six of these properties were accounted for by the
Company under the equity method. The Company recognized a gain of approximately
$4.7 million on the disposition of the five consolidated properties.
Debt Assumptions and Financings. During the year ended December 31, 1998,
the Company assumed or incurred new non-recourse indebtedness totalling $544.4
million in connection with the acquisition of 82 apartment properties.
In January 1998, the Company entered into a new $50 million credit
agreement with Bank of America National Trust and Savings Association and Bank
Boston, N.A. The AIMCO Operating Partnership is the borrower under the credit
agreement, but all obligations thereunder are guaranteed by AIMCO and certain of
its subsidiaries. In October 1998, the Company amended and restated the credit
agreement. The agreement now provides for a revolving credit facility of up to
$100 million, including a swing line of up to $30 million. The credit facility
matures on September 30, 1999, unless extended, at the discretion of the
lenders. The credit agreement also provides for the conversion of the revolving
facility into a three-year term loan. Under the credit agreement, as amended in
January 1999, loans bear interest at LIBOR or Bank of America's reference rate,
at the election of the Company, plus an applicable margin. The margins range
from 2.25% to 2.75% for a LIBOR rate borrowing and 0.75% to 1.25% for a base
rate borrowing, both dependant upon the total balance outstanding relative to
the calculated borrowing base value. The balance outstanding under the credit
facility was $84.3 million as of December 31, 1998.
In February 1998, the AIMCO Operating Partnership entered into a five year
$50 million secured credit facility agreement with Washington Mortgage Financial
Group, Ltd. AIMCO and certain subsidiaries guaranteed loans under the agreement
and the guarantees were secured by certain of their assets, including four
apartment properties and two mortgage notes. Under the agreement, advances to
the AIMCO Operating Partnership were funded with the proceeds from the sale to
investors of mortgage-backed securities issued by Fannie Mae and secured by the
advance and an interest in the collateral. The interest rate on each advance was
determined by investor bids for such mortgage-backed securities, plus a margin.
In February 1999, the Company terminated the credit facility and repaid all
outstanding borrowings with proceeds from new long-term, fully amortizing
indebtedness secured by certain properties that previously secured the credit
facility.
In October 1998, the AIMCO Operating Partnership and AIMCO entered into an
interim term loan agreement with Lehman Brothers Inc. and one of its affiliates,
and borrowed $300 million thereunder. The loan is unsecured and matures on
September 30, 1999. The proceeds were used to finance the Insignia merger and
related fees and expenses, to refinance existing indebtedness, and for general
working capital purposes. The loan bears interest at a base rate or the rate at
which eurodollar deposits for one month are offered in the interbank eurodollar
market, plus, in either case, a margin which averages 1.375% to 2.208% in the
case of base rate loans, and 2.375% to 3.208% in the case of eurodollar loans.
The base rate will be the higher of (i) the primary rate of Citibank, N.A., (ii)
the secondary market rate for three month certificates of deposit plus 1%, or
(iii) the federal funds effective rate plus 0.5%. In November 1998, the Company
used the proceeds of $100 million from the sale of AIMCO's Class J Cumulative
Preferred Stock to pay down the loan. As of December 31, 1998, there was $196
million of indebtedness outstanding under the loan agreement. In February 1999,
net proceeds of $115.0 million from the sale of 5,000,000 shares of AIMCO's
Class K Convertible Cumulative Preferred Stock were used to further paydown the
loan.
In October 1998, as the result of the acquisition of Insignia, AIMCO,
directly or through its subsidiaries, became the owner of approximately 51% of
IPT. Prior to the acquisition, IPT's operating partnership had entered into a
$50 million revolving credit agreement with Lehman Commercial Paper. Inc., as
syndication agent, and First Union National Bank, as administrative agent.
Borrowings under the IPLP credit agreement may be used to finance certain
permitted investments and refinance certain other investments. The credit
agreement matures on December 30, 2000. The credit agreement provides for
interest at a rate based on LIBOR plus 2.50% per annum or a base rate of the
higher of prime rate or the Federal Funds rate plus 0.50%. As of December 31,
1998, there was $30 million outstanding under the credit agreement.
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In December 1998, the Company completed the restructuring of $222 million
in variable rate tax-exempt debt assumed in conjunction with the May 1998 merger
with Ambassador. The debt was secured by 27 properties located in Texas,
Arizona, Tennessee and Illinois. Through the restructuring, the Company
converted the previous tax-exempt debt to $204 million in fixed rate, fully
amortizing tax-exempt debt secured by 26 properties. The new debt has a weighted
average interest rate of 5.8% and matures in 23 years. The Company also incurred
$7.1 million of taxable debt secured by three of the properties, repaid $11.4
million of the previous tax-exempt debt, released $21.5 million in cash reserves
and impound accounts held by the prior mortgagors, and released two properties
that served as additional collateral for the previous debt.
In February and March 1999, the Company incurred $83.4 million of
long-term, fixed rate, fully amortizing mortgage debt secured by 13 properties.
The Company used the $81.5 million of net proceeds from the financings to repay
debt under the interim loan agreement with Lehman Brothers Inc., to repay debt
under its credit facility with Bank of America National Trust and Savings
Association and Bank Boston, N.A. and to provide working capital. As of March
11, 1999, the balance outstanding under the interim loan agreement was $25
million, under the credit facility was $74.8 million and under the IPT credit
agreement was $45 million. The amount available under the credit facility at
March 11, 1999 was $24.0 million.
POTENTIAL PROPERTY ACQUISITIONS
In the ordinary course of business, the Company engages in discussions and
negotiations regarding the acquisition of apartment properties (including
interests in entities that own apartment properties). The Company frequently
enters into contracts and nonbinding letters of intent with respect to the
purchase of properties. These contracts are typically subject to certain
conditions and often permit the Company to terminate the contract in its sole
and absolute discretion if it is not satisfied with the results of its due
diligence investigation of the properties. The Company believes that such
contracts essentially result in the creation of an option on the subject
properties and give the Company greater flexibility in seeking to acquire
properties. As of March 8, 1999, the Company had under contract or letter of
intent an aggregate of 32 multi-family apartment properties with a maximum
aggregate purchase price of approximately $571.1 million, including estimated
capital improvements, which, in some cases, may be paid in the form of
assumption of existing debt. All such contracts are subject to termination by
the Company as described above. No assurance can be given that any of these
possible acquisitions will be completed or, if completed, that they will be
accretive to FFO on a per unit basis.
LITIGATION
The Company is a party to various legal actions resulting from its
operating activities. These actions are routine litigation and administrative
proceedings arising in the ordinary course of business, some of which are
covered by liability insurance, and none of which are expected to have a
material adverse effect on the consolidated financial condition or results of
operations of the Company and its subsidiary, taken as a whole.
In connection with the Company's acquisition of interests in limited
partnerships that own or manage apartments properties, through tender offers or
otherwise, from time to time, the Company is subject to legal actions arising
from such activities, including allegations that such activities may involve
breaches of fiduciary duties to the limited partners of such partnerships or may
violate the relevant partnership agreements. The Company's policy is to fulfill
its fiduciary obligations to its limited partners and with the partnership
agreements to which it is a party, and does not expect such claims to have a
material adverse effect on the consolidated financial conditions or results of
operations of the Company and its subsidiaries taken as a whole.
YEAR 2000 READINESS
General Description of the Year 2000 Issue and the Nature and Effects of
the Year 2000 on Information Technology (IT) and Non-IT Systems. The Year 2000
Issue is the result of computer programs being written using two digits rather
than four digits to define the applicable year. Any of the Company's computer
programs or hardware that have date-sensitive software or embedded chips may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a system failure or miscalculations causing
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disruptions of operations, including, among other things, a temporary inability
to process transactions, send invoices, or engage in similar normal business
activities.
Over the past two years, the Company has determined that it will be
required to modify or replace significant portions of its software and certain
hardware so that those systems will properly utilize dates beyond December 31,
1999. The Company presently believes that with modifications or replacements of
existing software and certain hardware, the Year 2000 Issue can be mitigated.
However, if such modifications and replacements are not made, or are not
completed timely, the Year 2000 Issue could have a material impact on the
operations of the Company.
The Company's plan to resolve the Year 2000 Issue involves the following
four phases: assessment, remediation, testing, and implementation. To date, the
Company has fully completed its assessment of all information systems that could
be significantly affected by the Year 2000, and has begun the remediation,
testing and implementation phases on both hardware and software systems.
Assessments are continuing in regards to embedded systems. The status of each is
detailed below.
Status of Progress in Becoming Year 2000 Compliant, Including Timetable for
Completion of Each Remaining Phase. During 1997 and 1998, AIMCO identified all
of the computer systems at risk and formulated a plan to repair or replace each
of the affected systems. The Company has replaced its mainframe system,
including the creation of new applications, at a total cost of approximately
$1.1 million. In August 1998, the Year-2000 compliant system became fully
functional. In addition to the mainframe, PC-based network servers and routers
and desktop PCs were analyzed for compliance. AIMCO has begun to replace each of
the non-compliant network connections and desktop PCs and, as of December 31,
1998, had completed approximately 75% of this effort. The total cost to replace
the PC-based network servers and routers and desktop PCs is expected to be
approximately $1.2 million, of which $1.0 million has been incurred to date. The
remaining network connections and desktop PCs are expected to be upgraded to
Year-2000 compliant systems by March 31, 1999.
AIMCO utilizes a combination of off-the-shelf commercially available
software programs as well as custom-written programs that are designed to fit
specific needs. Both of these types of programs were studied and implementation
plans written and executed with the intent of repairing or replacing any
non-compliant software programs.
In 1997, when AIMCO merged with NHP Incorporated, the core financial system
used by NHP was Year-2000 compliant. During 1998, AIMCO integrated all of its
core financial systems to this compliant system for general ledger and financial
reporting purposes. In 1997, AIMCO determined that the software used for
property management and rent collection was not Year 2000 compliant. During
1998, AIMCO implemented a Year 2000 compliant system at each of its owned or
managed properties, at a cost of $1.7 million. During 1998, AIMCO acquired 82
properties and acquired the Insignia multifamily business. Insignia owned or
managed 1,100 properties. As properties are acquired, AIMCO converts the
existing property management and rent collection systems to AIMCO's Year 2000
compliant systems. The estimated additional costs to convert such systems at all
recently acquired properties, including those acquired from Insignia, is
$200,000, and the implementation and testing process is expected to be completed
by March 31, 1999.
The final software area is the office software and server operating
systems. AIMCO has upgraded all non-compliant office software systems on each PC
and has upgraded 80% of the server operating systems. The remaining server
operating systems are planned to be upgraded to be Year 2000 compliant by March
31, 1999.
AIMCO has operating equipment, primarily at the property sites, which
needed to be evaluated for Year 2000 compliance. In September 1997, AIMCO began
taking a census and inventorying embedded systems (including those devices that
use time to control systems and machines at specific properties, including
elevators, heating, ventilating and air conditioning systems, and security and
alarm systems). The Company has chosen to focus its attention mainly upon
security systems, elevators, heating-ventilation-air-conditioning systems,
telephone systems and switches, and sprinkler systems. While this area is the
most difficult to fully research adequately, management has not yet found any
major non-compliance issues that put AIMCO at risk
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financially or operationally. We intend to have a third-party conduct an audit
of these systems and report their findings by March 31, 1999.
Any of the above operating equipment that has been found to be
non-compliant to date has been replaced or repaired. To date, these have
consisted only of security systems and phone systems. As of December 31, 1998,
we have evaluated approximately 86% of the operating equipment for Year 2000
compliance. The total cost incurred as of December 31, 1998 to replace or repair
the operating equipment was approximately $70,000. We estimate the cost to
replace or repair any remaining operating equipment is approximately $325,000,
and we expect to be completed by April 30, 1999. We continue to have "awareness
campaigns" throughout the organization designed to raise awareness and report
any possible compliance issues regarding operating equipment within our
enterprise.
Nature and Level of Importance of Third Parties and Their Exposure to the
Year 2000. AIMCO continues to conduct surveys of its banking and vendor
relationships to assess risks regarding their Year 2000 readiness. AIMCO has
banking relationships with three major financial institutions, all of which have
indicated their compliance efforts will be complete before May 1999. AIMCO has
updated data transmission standards with two of the three financial
institutions. AIMCO's contingency plan in this regard is to move accounts from
any institution that cannot be certified 2000 compliant by June 1, 1999.
The Company does not rely heavily on any single vendor for goods and
services and does not have significant suppliers and subcontractors who share
information systems with the Company (external agents). To date, the Company is
not aware of any external agent with a Year 2000 compliance issue that would
materially impact the Company's results of operations, liquidity, or capital
resources. However, the Company has no means of ensuring that external agents
will be Year 2000 compliant. Management does not believe that the inability of
external agents to complete their Year 2000 remediation process in a timely
manner will have a material impact on the financial position or results of
operations of the Company. However, the effect of non-compliance by external
agents is not readily determinable.
Costs to Address Year 2000. The total cost of the Year 2000 project is
estimated at $3.4 million and is being funded from operating cash flows. To
date, the Company has incurred approximately $2.7 million ($0.5 million expensed
and $2.2 million capitalized for new systems and equipment) related to all
phases of the Year 2000 project. Of the total remaining project costs,
approximately $0.4 million is attributable to the purchase of new software and
operating equipment, which will be capitalized. The remaining $0.3 million
relates to repair of hardware and software and will be expensed as incurred.
Risks Associated with the Year 2000. Management believes it has an
effective program in place to resolve the Year 2000 issue in a timely manner. As
noted above, the Company has not yet completed all necessary phases of the Year
2000 program. In the event that the Company does not complete any additional
phases, certain worst case scenarios could occur. The worst case scenarios
include elevators, security and heating, ventilating and air conditioning
systems that read incorrect dates and operate with incorrect schedules (e.g.,
elevators will operate on Monday as if it were Sunday). Although such a change
would be annoying to residents, it is not business critical. In addition,
disruptions in the economy generally resulting from Year 2000 issues could also
materially adversely affect the Company. The Company could be subject to
litigation for computer systems failure, for example, equipment shutdown or
failure to properly date business records. The amount of potential liability and
lost revenue cannot be reasonably estimated at this time.
Contingency Plans Associated with the Year 2000. The Company has
contingency plans for certain critical application and is working on such plans
for others. These contingency plans involve, among other actions, manual
workarounds and selecting new relationships for such activities as banking
relationships and elevator operating systems.
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DESCRIPTION OF PREFERRED STOCK
GENERAL
AIMCO may issue, from time to time, shares of one or more series or classes
of Preferred Stock. The following description sets forth certain general terms
and provisions of the Preferred Stock to which any Prospectus Supplement may
relate. The particular terms of any series of Preferred Stock that may be issued
and sold pursuant hereto, and the extent, if any, to which such general
provisions may apply to the series of Preferred Stock so offered will be
described in the Prospectus Supplement relating to such Preferred Stock. The
following summary of certain provisions of the Preferred Stock do not purport to
be complete and is subject to, and is qualified in its entirety by express
reference to, the provisions of the Charter relating to a specific series of the
Preferred Stock, which will be in the form filed as an exhibit to or
incorporated by reference in the Registration Statement of which this Prospectus
is a part at or prior to the time of issuance of such series of Preferred Stock.
The Charter authorizes the issuance of up to 510,750,000 shares of its
capital stock. As of February 28, 1999, 484,021,780 shares were classified as
Class A Common Stock, 750,000 shares were classified as Class B Cumulative
Convertible Preferred Stock, par value $.01 per share ("Class B Preferred
Stock"), 2,760,000 shares were classified as Class C Cumulative Preferred Stock,
par value $.01 per share ("Class C Preferred Stock"), 4,600,000 shares were
classified as Class D Cumulative Preferred Stock, par value $.01 per share
("Class D Preferred Stock"), 4,050,000 shares were classified as Class G
Cumulative Preferred Stock, par value $.01 per share ("Class G Preferred
Stock"), 2,300,000 shares were classified as Class H Cumulative Preferred Stock,
par value $.01 per share ("Class H Preferred Stock"), 2,000,000 shares were
classified as Class J Cumulative Convertible Preferred Stock, par value $.01 per
share ("Class J Preferred Stock") and 5,750,000 shares were classified as Class
K Convertible Cumulative Preferred Stock, par value $.01 per share ("Class K
Preferred Stock"). Under the Charter, the AIMCO Board of Directors has the
authority to classify and reclassify any of its unissued capital Stock into
shares of Preferred Stock by setting or changing in any one or more respects the
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications or terms or conditions of redemption
of such shares of capital Stock including, but not limited to, ownership
restrictions consistent with the Ownership Limit with respect to each series or
class of capital Stock, and the number of shares constituting each series or
class, and to increase or decrease the number of shares of any such series or
class, to the extent permitted by the Maryland General Corporation Law (the
"MGCL").
The AIMCO Board of Directors is authorized to determine for each series of
Preferred Stock, and the Prospectus Supplement will set forth with respect to
each class or series that may be issued and sold pursuant hereto: (i) the
designation of such shares and the number of shares that constitute such series,
(ii) the dividend rate (or the method of calculation thereof), if any, on the
shares of such series and the priority as to payment of dividends with respect
to other classes or series of capital stock of AIMCO, (iii) the dividend periods
(or the method of calculation thereof), (iv) the voting rights of the shares,
(v) the liquidation preference and the priority as to payment of such
liquidation preference with respect to other classes or series of capital stock
of AIMCO and any other rights of the shares of such series upon any liquidation
or winding-up of AIMCO, (vi) whether or not and on what terms the shares of such
series will be subject to redemption or repurchase at the option of AIMCO, (vii)
whether and on what terms the shares of such series will be convertible into or
exchangeable for other debt or equity securities of AIMCO, (viii) whether the
shares of such series of Preferred Stock will be listed on a securities
exchange, (ix) any special United States federal income tax considerations
applicable to such series, and (x) the other rights and privileges and any
qualifications, limitations or restrictions of such rights or privileges of such
series not inconsistent with the Charter and the MGCL.
DIVIDENDS
Holders of shares of Preferred Stock will be entitled to receive, when and
as declared by the AIMCO Board of Directors, out of funds of AIMCO legally
available therefor, an annual cash dividend payable at such dates and at such
rates, if any, per share per annum as set forth in the applicable Prospectus
Supplement.
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Each series of Preferred Stock that may be issued and sold pursuant hereto,
will rank junior as to dividends to any Preferred Stock that may be issued in
the future that is expressly senior as to dividends to the Preferred Stock. If
at any time AIMCO has failed to pay accrued dividends on any such senior shares
at the time such dividends are payable, AIMCO may not pay any dividend on the
Preferred Stock or redeem or otherwise repurchase shares of Preferred Stock
until such accumulated but unpaid dividends on such senior shares have been paid
or set aside for payment in full by AIMCO.
No dividends (other than in Class A Common Stock or Class B Common Stock
(collectively, the "Common Stock") or other capital Stock ranking junior to the
Preferred Stock of any series as to dividends and upon liquidation) shall be
declared or paid or set aside for payment, nor shall any other distribution be
declared or made upon the Common Stock, or any other capital stock of AIMCO
ranking junior to or on a parity with the Preferred Stock of such series as to
dividends, nor shall any Common Stock or any other capital stock of AIMCO
ranking junior to or on a parity with the Preferred Stock of such series as to
dividends or upon liquidation be redeemed, purchased or otherwise acquired for
any consideration (or any moneys be paid to or made available for a sinking fund
for the redemption of any shares of any such stock) by AIMCO (except by
conversion into or exchange for other capital stock of AIMCO ranking junior to
the Preferred Stock of such series as to dividends and upon liquidation) unless
(i) if such series of Preferred Stock has a cumulative dividend, full cumulative
dividends on the Preferred Stock of such series have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
set apart for all past dividend periods and the then current dividend period and
(ii) if such series of Preferred Stock does not have a cumulative dividend, full
dividends on the Preferred Stock of such series have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
set apart for payment for the then current dividend period; provided, however,
that any monies theretofore deposited in any sinking fund with respect to any
Preferred Stock in compliance with the provisions of such sinking fund may
thereafter be applied to the purchase or redemption of such Preferred Stock in
accordance with the terms of such sinking fund, regardless of whether at the
time of such application full cumulative dividends upon shares of the Preferred
Stock outstanding on the last dividend payment date shall have been paid or
declared and set apart for payment; and provided, further, that any such junior
or parity preferred stock or Common Stock may be converted into or exchanged for
stock of AIMCO ranking junior to the Preferred Stock as to dividends.
The amount of dividends payable for the initial dividend period or any
period shorter than a full dividend period shall be computed on the basis of a
360-day year of twelve 30-day months. Accrued but unpaid dividends will not bear
interest.
CONVERTIBILITY
The applicable Prospectus Supplement for each series of Preferred Stock
that may be issued and sold pursuant hereto will set forth the terms and
conditions of such series of Preferred Stock with respect to whether such series
of Preferred Stock will be convertible into, or exchangeable for, other
securities or property, including the initial conversion or exchange rate and
any adjustments thereto, the conversion or exchange period and any other
conversion or exchange provisions.
REDEMPTION AND SINKING FUND
The applicable Prospectus Supplement for each series of Preferred Stock
that may be issued and sold pursuant hereto will set forth the terms and
conditions of such series of Preferred Stock with respect to redemption rights
and the benefit of any sinking fund, including the dates and redemption prices
of any such redemption, any conditions thereto, and any other redemption or
sinking fund provisions.
LIQUIDATION RIGHTS
In the event of any liquidation, dissolution or winding up of AIMCO, the
holders of shares of each series of Preferred Stock that may be issued and sold
pursuant hereto are entitled to receive out of assets of AIMCO available for
distribution to stockholders, before any distribution of assets is made to
holders of: (i) any other
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shares of Preferred Stock ranking junior to such series of Preferred Stock as to
rights upon liquidation, dissolution or winding up; and (ii) shares of Common
Stock, liquidating distributions per share in the amount of the liquidation
preference specified in the applicable Prospectus Supplement for such series of
Preferred Stock plus any dividends accrued and accumulated but unpaid to the
date of final distribution; but the holders of each series of Preferred Stock
will not be entitled to receive the liquidating distribution of, plus such
dividends on, such shares until the liquidation preference of any shares of
AIMCO's capital stock ranking senior to such series of the Preferred Stock as to
the rights upon liquidation, dissolution or winding up shall have been paid (or
a sum set aside therefor sufficient to provide for payment) in full. If upon any
liquidation, dissolution or winding up of AIMCO, the amounts payable with
respect to the Preferred Stock, and any other Preferred Stock ranking as to any
such distribution on a parity with the Preferred Stock are not paid in full, the
holders of the Preferred Stock and such other parity preferred stock will share
ratably in any such distribution of assets in proportion to the full respective
preferential amount to which they are entitled. After payment of the full amount
of the liquidating distribution to which they are entitled, the holders of
shares of Preferred Stock will not be entitled to any further participation in
any distribution of assets by AIMCO. Neither a consolidation or merger of AIMCO
with another corporation nor a sale of securities shall be considered a
liquidation, dissolution or winding up of AIMCO.
VOTING RIGHTS
Holders of Preferred Stock that may be issued and sold pursuant hereto will
have the voting rights required by law and the voting rights described below.
Whenever dividends on any applicable series of Preferred Stock or any other
class or series of stock ranking on a parity with the applicable series of
Preferred Stock with respect to the payment of dividends shall be in arrears for
the equivalent of six quarterly dividend periods, whether or not consecutive,
the holders of shares of such series of Preferred Stock (voting separately as a
class with all other series of Preferred Stock then entitled to such voting
rights) will be entitled to vote for the election of two of the authorized
number of directors of AIMCO at the next annual meeting of stockholders and at
each subsequent meeting until all dividends accumulated on such series of
Preferred Stock shall have been fully paid or set apart for payment. The term of
office of all directors elected by the holders of such Preferred Stock shall
terminate immediately upon the termination of the right of the holders of such
Preferred Stock to vote for directors. Holders of shares of Preferred Stock that
may be issued and sold pursuant hereto will have one vote for each share held.
So long as any shares of any series of Preferred Stock remain outstanding,
AIMCO shall not, without the consent of holders of at least two-thirds of the
shares of such series of Preferred Stock outstanding at the time, voting
separately as a class with all other series of Preferred Stock of AIMCO upon
which like voting rights have been conferred and are exercisable, (i) issue or
increase the authorized amount of any class or series of stock ranking prior to
the outstanding Preferred Stock as to dividends or upon liquidation or (ii)
amend, alter or repeal the provisions of the Charter relating to such series of
Preferred Stock, whether by merger, consolidation or otherwise, so as to
materially adversely affect any power, preference or special right of such
series of Preferred Stock or the holders thereof; provided, however, that any
increase in the amount of the authorized Common Stock or authorized Preferred
Stock or any increase or decrease in the number of shares of any series of
Preferred Stock or the creation and issuance of other series of Common Stock or
Preferred Stock ranking on a parity with or junior to Preferred Stock as to
dividends and upon liquidation, dissolution or winding up shall not be deemed to
materially adversely affect such powers, preferences or special rights.
MISCELLANEOUS
The holders of Preferred Stock will have no preemptive rights. The
Preferred Stock that may be issued and sold pursuant hereto, upon issuance
against full payment of the purchase price therefor, will be fully paid and
nonassessable. Shares of Preferred Stock redeemed or otherwise reacquired by
AIMCO shall resume the status of authorized and unissued shares of Preferred
Stock undesignated as to series, and shall be available for subsequent issuance.
The applicable Prospectus Supplement will set forth the restrictions, if any, on
repurchase or redemption of the Preferred Stock while there is any arrearage on
sinking fund installments. Payment of dividends on, and the redemption or
repurchase of, any series of Preferred Stock may be restricted
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by loan agreements, indentures and other agreements entered into by AIMCO. The
applicable Prospectus Supplement will describe any material contractual
restrictions on such dividend payments.
OTHER RIGHTS
The shares of a series of Preferred Stock that may be issued and sold
pursuant hereto will have the preferences, voting powers or relative,
participating, optional or other special rights set forth above or in the
applicable Prospectus Supplement or the Charter or as otherwise required by law.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for each series of Preferred Stock that
may be issued and sold pursuant hereto will be designated in the applicable
Prospectus Supplement.
CLASS B PREFERRED STOCK
On August 4, 1997, AIMCO issued 750,000 shares of its Class B Preferred
Stock to an institutional investor (the "Preferred Share Investor") in a private
transaction. The Class B Preferred Stock (a) ranks prior to the Common Stock
with respect to dividends, liquidation, dissolution and winding-up, and has an
aggregate liquidation value of $75 million and (b) ranks on parity with the
Class C Preferred Stock, the Class D Preferred Stock, the Class G Preferred
Stock, the Class H Preferred Stock, the Class J Preferred Stock and the Class K
Preferred Stock. Holders of the Class B Preferred Stock are entitled to receive,
when, as and if declared by the AIMCO Board of Directors, quarterly cash
dividends per share equal to the greater of (i) $1.78125 (the "Base Rate") and
(ii) the cash dividends declared on the number of shares of Class A Common Stock
into which one share of Class B Preferred Stock is convertible. On or after
August 4, 1998, each share of Class B Preferred Stock may be converted at the
option of the holder into 3.28407 shares of Class A Common Stock, subject to
certain anti-dilution adjustments. AIMCO may redeem any or all of the Class B
Preferred Stock on or after August 4, 2002, at a redemption price of $100 per
share, plus unpaid dividends accrued on the shares redeemed.
Holders of Class B Preferred Stock, voting as a class with the holders of
all AIMCO capital stock that ranks on a parity with the Class B Preferred Stock
with respect to the payment of dividends or upon liquidation, dissolution,
winding up or otherwise ("Class B Parity Stock"), will be entitled to elect (i)
two directors of AIMCO if six quarterly dividends (regardless of whether
consecutive) on the Class B Preferred Stock or any Class B Parity Stock are in
arrears, and (ii) one director of AIMCO if for two consecutive quarterly
dividend periods AIMCO fails to pay at least $0.4625 in dividends on the Class A
Common Stock. The affirmative vote of the holders of two-thirds of the
outstanding shares of Class B Preferred Stock will be required to amend the
Charter in any manner that would adversely affect the rights of the holders of
Class B Preferred Stock, and to approve the issuance of any capital stock that
ranks senior to the Class B Preferred Stock with respect to payment of dividends
or upon liquidation, dissolution, winding up or otherwise. If the IRS were to
make a final determination that AIMCO does not qualify as a REIT in accordance
with Sections 856 through 860 of the Internal Revenue Code, the Base Rate for
the quarterly cash dividends on the Class B Preferred Stock would increase to
$3.03125 per share.
The agreement pursuant to which AIMCO issued the Class B Preferred Stock
(the "Preferred Share Purchase Agreement") provides that the Preferred Share
Investor may require AIMCO to repurchase such investor's Class B Preferred Stock
in whole or in part at a price of 105% of the liquidation preference thereof,
plus accrued and unpaid dividends on the purchased shares, if (i) AIMCO shall
fail to continue to be taxed as a REIT pursuant to Sections 856 through 860 of
the Internal Revenue Code, or (ii) upon the occurrence of a change of control
(as defined in the Preferred Share Purchase Agreement). The Preferred Share
Purchase Agreement also provides that, so long as the Preferred Share Investor
owns Class B Preferred Stock with an aggregate liquidation preference of at
least $18.75 million, neither AIMCO, the AIMCO Operating Partnership nor any
subsidiary of AIMCO may issue preferred securities or incur indebtedness for
borrowed money if immediately following such issuance and after giving effect
thereto and the application of the net proceeds therefrom, AIMCO's ratio of
aggregate consolidated earnings before interest, taxes, depreciation and
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amortization to aggregate consolidated fixed charges for the four fiscal
quarters immediately preceding such issuance would be less than 1.5 to 1.
Subject to certain exceptions specified in the provisions of the Charter
establishing the terms of the Class B Preferred Stock, no holder may own, or be
deemed to own by virtue of various attribution and constructive ownership
provisions of the Internal Revenue Code and Rule 13d-3 under the Securities
Exchange Act of 1934, shares of Class B Preferred Stock with a value in excess
of the amount by which (i) 8.7% (or 15% in the case of certain pension trusts
described in the Internal Revenue Code, investment companies registered under
the Investment Company Act of 1940 and Mr. Considine) of the aggregate value of
all shares of capital stock of AIMCO exceeds (ii) the aggregate value of all
shares of capital stock of AIMCO, other than Class B Preferred Stock, that are
owned by such holder (the "Class B Preferred Ownership Limit"). The AIMCO Board
of Directors may waive such ownership limit if evidence satisfactory to the
AIMCO Board and AIMCO's tax counsel is presented that such ownership will not
then or in the future jeopardize AIMCO's status as a REIT. As a condition of
such waiver, the AIMCO Board of Directors may require opinions of counsel
satisfactory to it and/or an undertaking from the applicant with respect to
preserving the REIT status of AIMCO. If shares of Class B Preferred Stock in
excess of the Class B Preferred Ownership Limit, or shares of Class B Preferred
Stock which would result in AIMCO being "closely held," within the meaning of
Section 856(h) of the Internal Revenue Code, or which would otherwise result in
AIMCO failing to qualify as a REIT, are issued or transferred to any person,
such issuance or transfer will be null and void to the intended transferee, and
the intended transferee would acquire no rights to the stock. Shares of Class B
Preferred Stock transferred in excess of the Class B Preferred Ownership Limit
or other applicable limitations will automatically be transferred to a trust for
the exclusive benefit of one or more qualifying charitable organizations to be
designated by AIMCO. Shares transferred to such trust will remain outstanding,
and the trustee of the trust will have all voting and dividend rights pertaining
to such shares. The trustee of such trust may transfer such shares to a person
whose ownership of such shares does not violate the Class B Preferred Ownership
Limit or other applicable limitation. Upon a sale of such shares by the trustee,
the interest of the charitable beneficiary will terminate, and the sales
proceeds would be paid, first, to the original intended transferee, to the
extent of the lesser of (a) such transferee's original purchase price (or the
original market value of such shares if purportedly acquired by gift or devise)
and (b) the price received by the trustee, and, second, any remainder to the
charitable beneficiary. In addition, shares of stock held in such trust are
purchasable by AIMCO for a 90-day period at a price equal to the lesser of the
price paid for the stock by the original intended transferee (or the original
market value of such shares if purportedly acquired by gift or devise) and the
market price for the stock on the date that AIMCO determines to purchase the
stock. The 90-day period commences on the date of the violative transfer or the
date that the AIMCO Board determines in good faith that a violative transfer has
occurred, whichever is later. All certificates representing shares of Class B
Preferred Stock bear a legend referring to the restrictions described above.
CLASS C PREFERRED STOCK
On December 23, 1997, AIMCO issued 2,400,000 shares of its 9% Class C
Preferred Stock in an underwritten public offering for net proceeds of
approximately $57.9 million. The Class C Preferred Stock (a) ranks prior to the
Common Stock, and any other class or series of capital stock of AIMCO if the
holders of the Class C Preferred Stock are entitled to the receipt of dividends
and of amounts distributable upon liquidation, dissolution, and winding-up in
preference or priority to the holders of shares of such class or series ("Class
C Junior Stock"), (b) ranks on parity with the Class B Preferred Stock, the
Class D Preferred Stock, the Class G Preferred Stock, the Class H Preferred
Stock, the Class J Preferred Stock, the Class K Preferred Stock, and with any
other class or series of capital stock of AIMCO if the holders of such class of
stock or series and the Class C Preferred Stock shall be entitled to the receipt
of dividends and of amounts distributable upon liquidation, dissolution or
winding up in proportion to their respective amounts of accrued and unpaid
dividends per share or liquidation preferences, without preference or priority
one over the other ("Class C Parity Stock") and (c) ranks junior to any class or
series of capital stock of AIMCO if the holders of such class or series shall be
entitled to the receipt of dividends or amounts distributable upon liquidation,
dissolution or winding up in preference or priority to the holders of the Class
C Preferred Stock ("Class C Senior Stock").
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Holders of Class C Preferred Stock are entitled to receive cash dividends
at the rate of 9% per annum of the $25 liquidation preference (equivalent to
$2.25 per annum per share). Such dividends are cumulative from the date of
original issue, and are payable quarterly on or before January 15, April 15,
July 15 and October 15 of each year. Upon any liquidation, dissolution or
winding up of AIMCO, before payment or distribution by AIMCO shall be made to or
set apart for the holders of any shares of Class C Junior Stock, the holders of
Class C Preferred Stock shall be entitled to receive a liquidation preference of
$25 per share (the "Class C Liquidation Preference"), plus an amount equal to
all accumulated, accrued and unpaid dividends to the date of final distribution
to such holders; but such holders shall not be entitled to any further payment.
If proceeds available for distribution shall be insufficient to pay the
preference described above and any liquidating payments on any other shares of
any class or series of Class C Parity Stock, then such proceeds shall be
distributed among the holders of Class C Preferred Stock and any such other
Class C Parity Stock ratably in the same proportion as the respective amounts
that would be payable on such Class C Preferred Stock and any such other Class C
Parity Stock if all amounts payable thereon were paid in full.
On and after December 23, 2002, AIMCO may redeem shares of Class C
Preferred Stock, in whole or in part, at a cash redemption price equal to 100%
of the Class C Liquidation Preference plus all accrued and unpaid dividends to
the date fixed for redemption. The Class C Preferred Stock has no stated
maturity and will not be subject to any sinking find or mandatory redemption
provisions.
Holders of shares of Class C Preferred Stock have no voting rights, except
that if distributions on Class C Preferred Stock or any series or class of Class
C Parity Stock shall be in arrears for six or more quarterly periods, the number
of directors constituting the AIMCO Board shall be increased by two and the
holders of Class C Preferred Stock (voting together as a single class with all
other shares of Class C Parity Stock which are entitled to similar voting
rights) will be entitled to vote for the election of the two additional
directors of AIMCO at any annual meeting of stockholders or at a special meeting
of the holders of the Class C Preferred Stock called for such purpose. The
affirmative vote of the holders of two thirds of the outstanding shares of Class
C Preferred Stock will be required to amend the Charter in any manner that would
adversely affect the rights of the holders of Class C Preferred Stock, and to
approve the issuance of any capital Stock that ranks senior to the Class C
Preferred Stock with respect to payment of dividends or upon liquidation,
dissolution, winding up or otherwise.
There are ownership restrictions applicable to the Class C Preferred Stock
that are similar to those for the Class B Preferred Stock.
CLASS D PREFERRED STOCK
On February 19, 1998, AIMCO issued 4,200,000 shares of its 8 3/4% Class D
Preferred Stock, in an underwritten public offering, for net proceeds of
approximately $101.5 million. The Class D Preferred Stock (a) ranks prior to the
Common Stock, and any other class or series of capital stock of AIMCO if the
holders of the Class D Preferred Stock are to be entitled to the receipt of
dividends of or amounts distributable upon liquidation, dissolution, and
winding-up in preference or priority to the holders of shares of such class or
series ("Class D Junior Stock"), (b) ranks on parity with the Class B Preferred
Stock, the Class C Preferred Stock, the Class G Preferred Stock, the Class H
Preferred Stock, the Class J Preferred Stock, the Class K Preferred Stock, and
with any other class or series of capital stock of AIMCO if the holders of such
class of stock or series and the Class D Preferred Stock shall be entitled to
the receipt of dividends and of amounts distributable upon liquidation,
dissolution or winding-up in proportion to their respective amounts of accrued
and unpaid dividends per share or liquidation preferences, without preference or
priority one over the other ("Class D Parity Stock") and (c) ranks junior to any
class or series of capital stock of AIMCO if the holders of such class or series
shall be entitled to the receipt of dividends or amounts distributable upon
liquidation, dissolution or winding up in preference or priority to the holders
of the Class D Preferred Stock ("Class D Senior Stock").
Holders of Class D Preferred Stock are entitled to receive cash dividends
at the rate of 8 3/4% per annum of the $25 liquidation preference (equivalent to
$2.1875 per annum per share). Such dividends are cumulative from the date of
original issue, and are payable quarterly on or before January 15, April 15,
July 15 and
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October 15 of each year. Upon any liquidation, dissolution or winding up of
AIMCO, before payment or distribution by AIMCO shall be made to or set apart for
the holders of any shares of Class D Junior Stock, the holders of Class D
Preferred Stock shall be entitled to receive a liquidation preference of $25 per
share (the "Class D Liquidation Preference"), plus an amount equal to all
accumulated, accrued and unpaid dividends to the date of final distribution to
such holders; but such holders shall not be entitled to any further payment. If
proceeds available for distribution shall be insufficient to pay the preference
described above and any liquidating payments on any other shares of any class or
series of Class D Parity Stock, then such proceeds shall be distributed among
the holders of Class D Preferred Stock and any such other Class D Parity Stock
ratably in the same proportion as the respective amounts that would be payable
on such Class D Preferred Stock and any such other Class D Parity Stock if all
amounts payable thereon were paid in full.
On and after February 19, 2003, AIMCO may redeem shares of Class D
Preferred Stock, in whole or in part, at a cash redemption price equal to 100%
of the Class D Liquidation Preference plus all accrued and unpaid dividends to
the date fixed for redemption. The Class D Preferred Stock has no stated
maturity and will not be subject to any sinking fund or mandatory redemption
provisions.
Holders of shares of Class D Preferred Stock have no voting rights, except
that if distributions on Class D Preferred Stock or any series or class of Class
D Parity Stock shall be in arrears for six or more quarterly periods, the number
of directors constituting the AIMCO Board shall be increased by two and the
holders of Class D Preferred Stock (voting together as a single class with all
other shares of Class D Parity Stock which are entitled to similar voting
rights) will be entitled to vote for the election of the two additional
directors of AIMCO at any annual meeting of stockholders or at a special meeting
of the holders of the Class D Preferred Stock called for the purpose. The
affirmative vote of the holders of two-thirds of the outstanding shares of Class
D Preferred Stock will be required to amend the Charter in any manner that would
adversely affect the rights of the holders of Class D Preferred Stock, and to
approve the issuance of any capital stock that ranks senior to the Class D
Preferred Stock with respect to payment of dividends or upon liquidation,
dissolution, winding up or otherwise.
There are ownership restrictions applicable to the Class D Preferred Stock
that are similar to those for the Class B Preferred Stock.
CLASS G PREFERRED STOCK
On July 15, 1998, AIMCO issued 4,050,000 shares of its Class G Preferred
Stock, in an underwritten public offering for net proceeds of approximately
$98.0 million. The Class G Preferred Stock (a) ranks prior to the Common Stock
and any other class or series of capital Stock of AIMCO, if the holders of the
Class G Preferred Stock are to be entitled to the receipt of dividends or of
amounts distributable upon liquidation, dissolution, and winding-up in
preference or priority to the holders of shares of such class or series ("Class
G Junior Stock"), (b) ranks on parity with the Class B Preferred Stock, the
Class C Preferred Stock, the Class D Preferred Stock, the Class H Preferred
Stock, the Class J Preferred Stock, the Class K Preferred Stock, and with any
other class or series of capital Stock of AIMCO, if the holders of such class of
Stock or series and the Class G Preferred Stock shall be entitled to the receipt
of dividends and of amounts distributable upon liquidation, dissolution or
winding-up in proportion to their respective amounts of accrued and unpaid
dividends per share or liquidation preferences, without preference or priority
one over the other ("Class G Parity Stock") and (c) ranks junior to any class or
series of capital Stock of AIMCO if the holders of such class or series shall be
entitled to the receipt of dividends or amounts distributable upon liquidation,
dissolution or winding-up in preference or priority to the holders of the Class
G Preferred Stock ("Class G Senior Stock").
Holders of Class G Preferred Stock are entitled to receive cash dividends
at the rate of 9 3/8% per annum of the $25 liquidation preference (equivalent to
$2.34375 per annum per share). Such dividends are cumulative from the date of
original issue, and are payable quarterly on or before January 15, April 15,
July 15 and October 15 of each year, commencing October 15, 1998. Upon any
liquidation, dissolution or winding up of AIMCO, before payment or distribution
by AIMCO shall be made to or set apart for the holders of any shares of Class G
Junior Stock, the holders of Class G Preferred Stock shall be entitled to
receive a liquidation
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preference of $25 per share (the "Class G Liquidation Preference"), plus an
amount equal to all accumulated, accrued and unpaid dividends to the date of
final distribution to such holders; but such holders shall not be entitled to
any further payment. If proceeds available for distribution shall be
insufficient to pay the preference described above and any liquidating payments
on any other shares of any class or series of Class G Parity Stock, then such
proceeds shall be distributed among the holders of Class G Preferred Stock and
any such other Class G Parity Stock ratably in the same proportion as the
respective amount that would be payable on such Class G Preferred Stock and any
such other Class G Parity Stock if all amounts payable thereon were paid in
full.
On and after July 15, 2008, AIMCO may redeem shares of Class G Preferred
Stock, in whole or in part, at a cash redemption price equal to 100% of the
Class G Liquidation Preference plus all accrued and unpaid dividends to the date
fixed for redemption. The Class G Preferred Stock has no stated maturity and
will not be subject to any sinking fund or mandatory redemption provisions.
Holders of shares of Class G Preferred Stock have no voting rights, except
that if distributions on Class G Preferred Stock or any series or class of Class
G Parity Stock shall be in arrears for six or more quarterly periods, the number
of directors constituting the AIMCO Board shall be increased by two and the
holders of Class G Preferred Stock (voting together as a single class with all
other shares of Class G Parity Stock, which are entitled to similar voting
rights) will be entitled to vote for the election of the two additional
directors of AIMCO at any annual meeting of stockholders or at a special meeting
of the holders of the Class G Preferred Stock called for the purpose. The
affirmative vote of the holders of two-thirds of the outstanding shares of Class
G Preferred Stock will be required to amend the Charter in any manner that would
adversely affect the rights of the holders of Class G Preferred Stock, and to
approve the issuance of any capital Stock that ranks senior to the Class G
Preferred Stock with respect to payment of dividends or upon liquidation,
dissolution, winding up or otherwise.
There are ownership restrictions applicable to the Class G Preferred Stock
that are similar to those for the Class B Preferred Stock.
CLASS H PREFERRED STOCK
On August 11, 1998, AIMCO issued 2,000,000 shares of its Class H Preferred
Stock, in an underwritten public offering for net proceeds of approximately
$48.1 million. The Class H Preferred Stock (a) ranks prior to the Common Stock
and any other class or series of capital Stock of AIMCO if the holders of the
Class H Preferred Stock are to be entitled to the receipt of dividends or of
amounts distributable upon liquidation, dissolution, and winding-up in
preference or priority to the holders of shares of such class or series ("Class
H Junior Stock"), (b) ranks on parity with the Class B Preferred Stock, the
Class C Preferred Stock, the Class D Preferred Stock and the Class G Preferred
Stock, the Class J Preferred Stock, the Class K Preferred Stock, and with any
other class or series of capital Stock of AIMCO, if the holders of such class of
Stock or series, shall be entitled to the receipt of dividends and of amounts
distributable upon liquidation, dissolution or winding-up in proportion to their
respective amounts of accrued and unpaid dividends per share or liquidation
preferences, without preference or priority one over the other ("Class H Parity
Stock") and (c) ranks junior to any class or series of capital Stock of AIMCO if
the holders of such class or series shall be entitled to the receipt of
dividends or amounts distributable upon liquidation, dissolution or winding-up
in preference or priority to the holders of the Class H Preferred Stock ("Class
H Senior Stock").
Holders of Class H Preferred Stock are entitled to receive cash dividends
at the rate of 9 1/2% per annum of the $25 liquidation preference (equivalent to
$2.375 per annum per share). Such dividends are cumulative from the date of
original issue, and are payable quarterly on or before January 15, April 15,
July 15 and October 15 of each year, commencing October 15, 1998. Upon any
liquidation, dissolution or winding up of AIMCO, before payment or distribution
by AIMCO shall be made to or set apart for the holders of any shares of Class H
Junior Stock, the holders of Class H Preferred Stock shall be entitled to
receive a liquidation preference of $25 per share (the "Class H Liquidation
Preference"), plus an amount equal to all accumulated, accrued and unpaid
dividends to the date of final distribution to such holders; but such holders
shall not be entitled to any further payment. If proceeds available for
distribution shall be insufficient to pay the preference
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described above and any liquidating payments on any other shares of any class or
series of Class H Parity Stock, then such proceeds shall be distributed among
the holders of Class H Preferred Stock and any such other Class H Parity Stock
ratably in the same proportion as the respective amount that would be payable on
such Class H Preferred Stock and any such other Class H Parity Stock if all
amounts payable thereon were paid in full.
On and after August 14, 2003, AIMCO may redeem shares of Class H Preferred
Stock, in whole or in part, at a cash redemption price equal to 100% of the
Class H Liquidation Preference plus all accrued and unpaid dividends to the date
fixed for redemption. The Class H Preferred Stock has no stated maturity and
will not be subject to any sinking fund or mandatory redemption provisions.
Holders of shares of Class H Preferred Stock have no voting rights, except
that if distributions on Class H Preferred Stock or any series or class of Class
H Parity Stock shall be in arrears for six or more quarterly periods, the number
of directors constituting the AIMCO Board shall be increased by two and the
holders of Class H Preferred Stock (voting together as a single class with all
other shares of Class H Parity Stock, which are entitled to similar voting
rights) will be entitled to vote for the election of the two additional
directors of AIMCO at any annual meeting of stockholders or at a special meeting
of the holders of the Class H Preferred Stock called for the purpose. The
affirmative vote of the holders of two-thirds of the outstanding shares of Class
H Preferred Stock will be required to amend the Charter in any manner that would
adversely affect the rights of the holders of Class H Preferred Stock, and to
approve the issuance of any capital Stock that ranks senior to the Class H
Preferred Stock with respect to payment of dividends or upon liquidation,
dissolution, winding up or otherwise.
There are ownership restrictions applicable to the Class H Preferred Stock
that are similar to those for the Class B Preferred Stock.
CLASS J PREFERRED STOCK
On November 6, 1998, AIMCO issued 1,250,000 shares of its Class J Preferred
Stock in a private transaction, including 250,000 shares of Class J Preferred
Stock to the AIMCO Operating Partnership. The Class J Preferred Stock (a) ranks
prior to the Common Stock with respect to dividends, liquidation, dissolution
and winding-up ("Class J Junior Stock"), and has a liquidation value of $100 per
share and (b) ranks on parity with the Class B Preferred Stock, the Class C
Preferred Stock, the Class D Preferred Stock, the Class G Preferred Stock, the
Class H Preferred Stock and the Class K Preferred Stock ("Class J Parity
Stock"). Holders of the Class J Preferred Stock are entitled to receive, when,
as and if declared by the AIMCO Board of Directors, quarterly cash dividends per
share equal to (i) 7% per annum of the liquidation preference thereof for the
period beginning on and including November 6, 1998 and lasting until November
15, 1998; (ii) 8% per annum of the per share liquidation preference for the
period beginning on and including November 15, 1998 and lasting until November
15, 1999; (iii) 9% per annum of the per share liquidation preference for the
period beginning on and including November 15, 1999 and lasting until November
15, 2000; and (iv) 9.5% per annum of the per share liquidation preference
thereafter. Such dividends will be cumulative from November 6, 1998, whether or
not in any quarterly dividend period(s) such dividends will be declared or there
will be funds legally available for the payment of such dividends.
On or after November 6, 1998, each share of Class J Preferred Stock may be
converted at the option of the holder into 2.5 shares of Class A Common Stock,
subject to certain anti-dilution adjustments. AIMCO may convert each share of
Class J Preferred Stock into 2.5 shares of Class A Common Stock (subject to
certain anti-dilution adjustments) (a) after November 6, 2002, if the market
price of the Class A Common Stock in the five most recent trading days is equal
to or greater than $40 or (b) at any time on or prior to November 6, 2002, if
the internal rate of return associated with an outstanding share of Class J
Preferred Stock exceeds 12.5%.
Holders of Class J Preferred Stock, voting as a class with the holders of
all Class J Parity Stock, will be entitled to elect two directors of AIMCO if
six quarterly dividends (regardless of whether consecutive) on the Class J
Preferred Stock or any Class J Parity Stock are in arrears, whether or not
earned or declared. The affirmative vote of the holders of two-thirds of the
outstanding shares of Class J Preferred Stock will be
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required to amend the Charter in any manner that would adversely affect the
rights of the holders of Class J Preferred Stock, and to approve the issuance of
any capital stock that ranks senior to the Class J Preferred Stock with respect
to payment of dividends or upon liquidation, dissolution, winding up or
otherwise.
There are ownership restrictions applicable to the Class J Preferred Stock
that are similar to those for the Class B Preferred Stock.
CLASS K PREFERRED STOCK
On February 11, 1999, AIMCO issued 5,000,000 shares of its Class K
Preferred Stock in an underwritten public offering for net proceeds of
approximately $120.3 million. The Class K Preferred Stock (a) ranks prior or
senior to the common stock and any other class or series of capital stock of
AIMCO if the holders of Class K Preferred Stock shall be entitled to the receipt
of dividends or of amounts distributable upon liquidation, dissolution or
winding up in preference or priority to the holders of shares of such class or
series ("Class K Junior Stock"); (b) ranks on a parity with the Class B
Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the
Class G Preferred Stock, the Class H Preferred Stock, the Class J Preferred
Stock and any other class or series of capital stock of AIMCO if the holders of
such class or series of stock and the Class K Preferred Stock shall be entitled
to the receipt of dividends and of amounts distributable upon liquidation,
dissolution or winding up in proportion to their respective amounts of accrued
and unpaid dividends per share or liquidation preferences, without preference or
priority of one over the other ("Class K Parity Stock"); and (c) ranks junior to
any class or series of capital stock of AIMCO if the holders of such class or
series shall be entitled to the receipt of dividends and amounts distributable
upon liquidation, dissolution or winding up in preference or priority to the
holders of the Class K Preferred Stock ("Class K Senior Stock").
Holders of Class K Preferred Stock are entitled to receive quarterly cash
dividends on the Class K Preferred Stock in an amount per share equal to (i)
from the date of original issuance of the Class K Preferred Stock through and
including February 17, 2002, the greater of $0.50 or the quarterly cash dividend
paid or payable (determined on each of the dividend payment dates for the Class
K Preferred Stock referred to below) on the number of shares of Class A Common
Stock (or portion thereof) into which a share of Class K Preferred Stock is
convertible, and (ii) from and after February 18, 2002, the greater of $0.625 or
the quarterly cash dividend paid or payable (determined on each of the dividend
payment dates for the Class K Preferred Stock referred to below) on the number
of shares of Class A Common Stock (or portion thereof) into which a share of
Class K Preferred Stock is convertible. Such dividends are cumulative from the
date of original issue and are payable quarterly on February 18, May 18, August
18 and November 18 of each year.
Upon any liquidation, dissolution or winding up of AIMCO, before any
payment or distribution by AIMCO shall be made to or set apart for the holders
of any shares of Class K Junior Stock, the holders of shares of Class K
Preferred Stock shall be entitled to receive a liquidation preference of $25 per
share (the "Class K Liquidation Preference"), plus an amount equal to all
accumulated, accrued and unpaid dividends to the date of final distribution to
such holders; but such holders shall not be entitled to any further payment. If
the proceeds available for distribution shall be insufficient to pay the above
described preference and any liquidating payments on any other shares of any
class or series of Class K Parity Stock, then such proceeds shall be distributed
among the holders of Class K Preferred Stock and any such other Class K Parity
Stock ratably in the same proportion as the respective amounts that would be
payable on such Class K Preferred Stock and any such other Class K Parity Stock
if all amounts payable thereon were paid in full.
Shares of Class K Preferred Stock are not redeemable by AIMCO prior to
February 20, 2002 (except in certain limited circumstances relating to AIMCO's
maintenance of its ability to qualify as a REIT). After February 20, 2002, AIMCO
may, at its option, redeem shares of Class K Preferred Stock, in whole or from
time to time in part, at a cash redemption price equal to 102% (100% on or after
February 18, 2003) of the Class K Liquidation Preference, plus all accumulated,
accrued and unpaid dividends, if any, to the date fixed for redemption. AIMCO
can redeem shares of Class K Preferred Stock for cash, or for shares of Class A
Common Stock, in which case, AIMCO will issue, as payment of the redemption
price for each share of Class K Preferred Stock to be redeemed, such number of
shares of Class A Common Stock that equals
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(x) 105% of the cash redemption price then in effect for the Class K Preferred
Stock, divided by (y) the market price of the Class A Common Stock, subject to
adjustment in certain circumstances.
Each share of Class K Preferred Stock is currently convertible into 0.59524
shares of Class A Common Stock of AIMCO, adjusted as described below. The
conversion price is subject to adjustment upon the occurrence of certain events,
including (i) the issuance of Class A Common Stock as a dividend or distribution
on the Class A Common Stock; (ii) a combination, subdivision or reclassification
of outstanding Class A Common Stock; (iii) the issuance to all holders of Class
A Common Stock of rights, options or warrants (expiring within 45 days after the
record date for determining stockholders entitled to receive such rights or
warrants) entitling such holders to subscribe for or purchase Class A Common
Stock at less than the then current market price; and (iv) the distribution to
all holders of Class A Common Stock of capital stock of AIMCO (other than Class
A Common Stock), evidences of indebtedness of AIMCO, assets or rights or
warrants to subscribe for or purchase securities of AIMCO (excluding (a)
dividends, distributions, rights, options and warrants pursuant to (i), (ii) and
(iii) above, (b) dividends and distributions paid in cash out of the retained
earnings of AIMCO, and (c) distributions upon mergers or consolidations of
AIMCO). No adjustment to the conversion price will be made with respect to
rights, options or warrants issued pursuant to certain employee benefit plans or
any dividend reinvestment plan. AIMCO from time to time may decrease the
conversion price by any amount for any period of at least 20 days, so long as
the decrease is irrevocable during such period, in which case AIMCO must give at
least 15 days' prior notice of such decrease to holders of Class K Preferred
Stock. In addition to the foregoing adjustments, AIMCO is permitted to make such
reductions in the conversion price as it determines to be advisable in order
that any stock dividend, subdivision of shares, distribution of rights to
purchase stock or securities or distribution of securities convertible into or
exchangeable for stock made by AIMCO to its stockholders will not be taxable to
the recipients.
Holders of shares of Class K Preferred Stock have no voting rights, except
that if distributions on Class K Preferred Stock or any series or class of Class
K Parity Stock are in arrears for six or more quarterly periods, the number of
directors then constituting the AIMCO Board of Directors will be increased by
two and the holders of shares of Class K Preferred Stock (voting together as a
single class with all other shares of Class K Parity Stock, which are entitled
to similar voting rights) will be entitled to vote for the election of the two
additional directors of AIMCO at any annual meeting of stockholders or at a
special meeting of the holders of the Class K Preferred Stock and of the Class K
Parity Stock with similar voting rights called for that purpose. The affirmative
vote of the holders of two-thirds of the outstanding shares of Class K Preferred
Stock will be required to amend the Charter in any manner that would materially
adversely affect the rights of the holders of the Class K Preferred Stock, and
to approve the issuance of any capital stock that ranks senior to the Class K
Preferred Stock with respect to payment of dividends or upon liquidation,
dissolution, winding up or otherwise.
There are ownership restrictions applicable to the Class K Preferred Stock
that are similar to those for the Class B Preferred Stock.
DESCRIPTION OF COMMON STOCK
GENERAL
The Charter authorizes the issuance of up to 510,750,000 shares of capital
stock with a par value of $.01 per share, of which 484,021,750 shares were
classified as Class A Common Stock as of February 28, 1999. As of February 28,
1999, there were 57,246,529 shares of Class A Common Stock issued and
outstanding. In addition, up to 150,000 shares of Class A Common Stock have been
reserved for issuance under AIMCO's 1994 Stock Option Plan, up to 500,000 shares
of Class A Common Stock have been reserved for issuance under AIMCO's 1996 Stock
Award and Incentive Plan, and up to 500,000 shares of Class A Common Stock have
been reserved for issuance under AIMCO's Non-Qualified Stock Option Plan. Under
AIMCO's 1997 Stock Award and Incentive Plan, AIMCO may issue up to 10% of the
shares of Class A Common Stock outstanding as of the first day of the fiscal
year during which any award is made, but in no event more than 20,000,000 shares
of Class A Common Stock. The Class A Common Stock is traded on the NYSE under
the symbol "AIV." BankBoston, N.A. serves as transfer agent and registrar of the
Class A Common Stock. As of
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February , 1999, the Charter authorized 750,000 shares of Class B Preferred
Stock, all of which were issued and outstanding; 2,760,000 shares of Class C
Preferred Stock, of which 2,400,000 shares were issued and outstanding;
4,600,000 shares of Class D Preferred Stock, of which 4,200,000 shares were
issued and outstanding; 4,050,000 shares of Class G Preferred Stock, all of
which shares were issued and outstanding; 2,300,000 shares of Class H Preferred
Stock, of which 2,000,000 shares were issued and outstanding; 2,000,000 shares
of Class J Preferred Stock of which 1,250,000 shares were issued and
outstanding; and 5,750,000 shares of Class K Preferred Stock of which 5,000,000
shares were issued and outstanding.
CLASS A COMMON STOCK
Holders of the Class A Common Stock are entitled to receive dividends, when
and as declared by the AIMCO Board, out of funds legally available therefor. The
holders of shares of Class A Common Stock, upon any liquidation, dissolution or
winding up of AIMCO, are entitled to receive ratably any assets remaining after
payment in full of all liabilities of AIMCO and the liquidation preferences of
preferred stock. The shares of Class A Common Stock possess ordinary voting
rights for the election of Directors and in respect of other corporate matters,
each share entitling the holder thereof to one vote. Holders of shares of Class
A Common Stock do not have cumulative voting rights in the election of
Directors, which means that holders of more than 50% of the shares of Class A
Common Stock voting for the election of Directors can elect all of the Directors
if they choose to do so and the holders of the remaining shares cannot elect any
Directors. Holders of shares of Class A Common Stock do not have preemptive
rights, which means they have no right to acquire any additional shares of Class
A Common Stock that may be issued by AIMCO at a subsequent date.
RESTRICTIONS ON TRANSFER
For AIMCO to qualify as a REIT under the Code, not more than 50% in value
of its outstanding capital stock may be owned, directly or indirectly, by five
or fewer individuals (as defined in the Code to include certain entities) during
the last half of a taxable year and the shares of capital stock must be
beneficially owned by 100 or more persons during at least 335 days of a taxable
year of 12 months or during a proportionate part of a shorter taxable year.
Because the AIMCO Board believes that it is essential for AIMCO to continue to
qualify as a REIT and to provide additional protection for AIMCO's stockholders
in the event of certain transactions, the AIMCO Board has adopted, and the
stockholders have approved, provisions of the Charter restricting the
acquisition of shares of Common Stock.
Subject to certain exceptions specified in the Charter, no holder may own,
or be deemed to own by virtue of various attribution and constructive ownership
provisions of the Internal Revenue Code and Rule 13d-3 under the Exchange Act,
more than 8.7% (or 15% in the case of certain pension trusts described in the
Internal Revenue Code, investment companies registered under the Investment
Company Act of 1940 and Mr. Considine) of the outstanding shares of Common
Stock. For purposes of calculating the amount of stock owned by a given
individual, the individual's Common Stock and Common OP Units are aggregated.
The AIMCO Board of Directors may waive the Ownership Limit if evidence
satisfactory to the AIMCO Board of Directors and AIMCO's tax counsel is
presented that such ownership will not then or in the future jeopardize AIMCO's
status as a REIT. However, in no event may such holder's direct or indirect
ownership of Common Stock exceed 9.8% of the total outstanding shares of Common
Stock. As a condition of such waiver, the AIMCO Board of Directors may require
opinions of counsel satisfactory to it and/or an undertaking from the applicant
with respect to preserving the REIT status of AIMCO. The foregoing restrictions
on transferability and ownership will not apply if the AIMCO Board of Directors
determines that it is no longer in the best interests of AIMCO to attempt to
qualify, or to continue to quality as a REIT and a resolution terminating
AIMCO's status as a REIT and amending the Charter to remove the foregoing
restrictions is duly adopted by the AIMCO Board of Directors and a majority of
AIMCO's stockholders. If shares of Common Stock in excess of the Ownership
Limit, or shares of Common Stock which would cause the REIT to be beneficially
owned by fewer than 100 persons, or which would result in AIMCO being "closely
held," within the meaning of Section 856(h) of the Internal Revenue Code, or
which would otherwise result in AIMCO failing to qualify as a REIT, are issued
or transferred to any person, such issuance or transfer shall be null and void
to the intended transferee, and the intended transferee would acquire no rights
to the stock. Shares of Common
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Stock transferred in excess of the Ownership Limit or other applicable
limitations will automatically be transferred to a trust for the exclusive
benefit of one or more qualifying charitable organizations to be designated by
AIMCO. Shares transferred to such trust will remain outstanding, and the trustee
of the trust will have all voting and dividend rights pertaining to such shares.
The trustee of such trust may transfer such shares to a person whose ownership
of such shares does not violate the Ownership Limit or other applicable
limitation. Upon a sale of such shares by the trustee, the interest of the
charitable beneficiary will terminate, and the sales proceeds would be paid,
first, to the original intended transferee, to the extent of the lesser of (a)
such transferee's original purchase price (or the original market value of such
shares if purportedly acquired by gift or devise) and (b) the price received by
the trustee, and, second, any remainder to the charitable beneficiary. In
addition, shares of stock held in such trust are purchasable by AIMCO for a
90-day period at a price equal to the lesser of the price paid for the stock by
the original intended transferee (or the original market value of such shares if
purportedly acquired by gift or devise) and the market price for the stock on
the date that AIMCO determines to purchase the stock. The 90-day period
commences on the date of the violative transfer or the date that the AIMCO Board
of Directors determines in good faith that a violative transfer has occurred,
whichever is later. All certificates representing shares of Common Stock bear a
legend referring to the restrictions described above.
All persons who own, directly or by virtue of the attribution provisions of
the Internal Revenue Code and Rule 13d-3 under the Securities Exchange Act of
1934, more than a specified percentage of the outstanding shares of Common Stock
must file a written statement or an affidavit with AIMCO containing the
information specified in the Charter within 30 days after January 1 of each
year. In addition, each stockholder shall upon demand be required to disclose to
AIMCO in writing such information with respect to the direct, indirect and
constructive ownership of shares as the AIMCO Board deems necessary to comply
with the provisions of the Internal Revenue Code applicable to a REIT or to
comply with the requirements of any taxing authority or governmental agency.
The ownership limitations may have the effect of precluding acquisition of
control of AIMCO by a third party unless the AIMCO Board of Directors determines
that maintenance of REIT status is no longer in the best interests of AIMCO.
BUSINESS COMBINATIONS
Under the MGCL, certain "business combinations" (including a merger,
consolidation, share exchange or, in certain circumstances, an asset transfer or
issuance or reclassification of equity securities) between a Maryland
corporation and any person who beneficially owns 10% or more of the voting power
of the corporation's shares or an affiliate of the corporation who, at any time
within the two-year period prior to the date in question, was the beneficial
owner of 10% or more of the voting power of the then-outstanding voting stock of
the corporation (an "Interested Stockholder") or an affiliate thereof are
prohibited for five years after the most recent date on which the Interested
Stockholder became an Interested Stockholder. Thereafter, any such business
combination must be recommended by the board of directors of the corporation and
approved by the affirmative vote of at least (a) 80% of the votes entitled to be
cast by holders of outstanding voting shares of the corporation, voting together
as a single voting group, and (b) two-thirds of the votes entitled to be cast by
holders of outstanding voting shares of the corporation other than shares held
by the Interested Stockholder or an affiliate of the Interested Stockholder with
whom the business combination is to be effected, unless, among other conditions,
the corporation's stockholders receive a minimum price (as defined in the MGCL)
for their shares and the consideration is received in cash or in the same form
as previously paid by the Interested Stockholder for its shares. For purposes of
determining whether a person is an Interested Stockholder, ownership of Common
OP Units will be treated as beneficial ownership of the shares of Common Stock
for which the Common OP Units may be redeemed. The business combination statute
could have the effect of discouraging offers to acquire AIMCO and of increasing
the difficulty of consummating any such offer. These provisions of the MGCL do
not apply, however, to business combinations that are approved or exempted by
the board of directors of the corporation prior to the time that the Interested
Stockholder becomes an Interested Stockholder. The AIMCO Board has not passed
such a resolution.
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CONTROL SHARE ACQUISITIONS
The MGCL provides that "control shares" of a Maryland corporation acquired
in a "control share acquisition" have no voting rights except to the extent
approved by a vote of two-thirds of the votes entitled to be cast on the matter,
excluding shares of stock owned by the acquiror or by officers or directors who
are employees of the corporation. "Control shares" are voting shares of stock
that, if aggregated with all other shares of stock previously acquired by that
person, would entitle the acquiror to exercise voting power in electing
directors within one of the following ranges of voting power: (i) one-fifth or
more but less than one-third, (ii) one-third or more but less than a majority or
(iii) a majority or more of all voting power. Control shares do not include
shares the acquiring person is then entitled to vote as a result of having
previously obtained stockholder approval.
A "control share acquisition" means the acquisition of control shares,
subject to certain exceptions. A person who has made or proposes to make a
control share acquisition, upon satisfaction of certain conditions (including an
undertaking to pay expenses), may compel the corporation's board of directors to
call a special meeting of stockholders, to be held within 50 days of demand, to
consider the voting rights of the shares. If no request for a meeting is made,
the corporation may itself present the question at any stockholders meeting.
If voting rights are not approved at the meeting or if the acquiring person
does not deliver an "acquiring person statement" as required by the statute,
then, subject to certain conditions and limitations, the corporation may redeem
any or all of the control shares (except those for which voting rights have
previously been approved) for fair value determined, without regard to the
absence of voting rights, as of the date of the last control share acquisition
or of any meeting of stockholders at which the voting rights of such shares were
considered and not approved. If voting rights for control shares are approved at
a stockholders meeting and the acquiror becomes entitled to vote a majority of
the shares entitled to vote, all other stockholders may exercise appraisal
rights. The fair value of the shares as determined for purposes of the appraisal
rights may not be less than the highest price per share paid in the control
share acquisition, and certain limitations and restrictions otherwise applicable
to the exercise of dissenters' rights do not apply in the context of a control
share acquisition.
The control share acquisition statute does not apply to shares acquired in
a merger, consolidation or share exchange if the corporation is a party to the
transaction, or to acquisitions approved or exempted by the corporation's
articles of incorporation or bylaws prior to the control share acquisition. No
such exemption appears in the Charter or in AIMCO's bylaws (the "Bylaws"). The
control share acquisition statute could have the effect of discouraging offers
to acquire AIMCO and of increasing the difficulty of consummating any such
offer.
DESCRIPTION OF OP UNITS
The following description sets forth certain general terms and provisions
of the OP Units and the AIMCO Operating Partnership Agreement. The AIMCO
Operating Partnership Agreement (excluding the amendments and exhibits thereto,
all of which are available upon request to AIMCO) is included as Appendix B
hereto, and this description is qualified in its entirety by the terms thereof.
GENERAL
The AIMCO Operating Partnership is a limited partnership organized pursuant
to the provisions of the Delaware Revised Uniform Limited Partnership Act (as
amended from time to time, or any successor to such statute, the "Delaware LP
Act") and upon the terms and subject to the conditions set forth in the AIMCO
Operating Partnership Agreement. AIMCO GP, a Delaware corporation and a wholly
owned subsidiary of AIMCO, is the sole general partner of the AIMCO Operating
Partnership. Another wholly owned subsidiary of AIMCO, the Special Limited
Partner, is a limited partner in the AIMCO Operating Partnership. The term of
the AIMCO Operating Partnership commenced on May 16, 1994, and will continue
until December 31, 2093, unless the AIMCO Operating Partnership is dissolved
sooner pursuant to the provisions of the AIMCO Operating Partnership Agreement
or as otherwise provided by law.
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PURPOSE AND BUSINESS
The purpose and nature of the AIMCO Operating Partnership is to conduct any
business, enterprise or activity permitted by or under the Delaware LP Act,
including, but not limited to, (i) to conduct the business of ownership,
construction, development and operation of multifamily rental apartment
communities, (ii) to enter into any partnership, joint venture, business trust
arrangement, limited liability company or other similar arrangement to engage in
any business permitted by or under the Delaware LP Act, or to own interests in
any entity engaged in any business permitted by or under the Delaware LP Act,
(iii) to conduct the business of providing property and asset management and
brokerage services, whether directly or through one or more partnerships, joint
ventures, subsidiaries, business trusts, limited liability companies or other
similar arrangements, and (iv) to do anything necessary or incidental to the
foregoing; provided, however, such business and arrangements and interests may
be limited to and conducted in such a manner as to permit AIMCO, in the sole and
absolute discretion of the AIMCO GP, at all times to be classified as a REIT.
MANAGEMENT BY THE AIMCO GP
Except as otherwise expressly provided in the AIMCO Operating Partnership
Agreement, all management powers over the business and affairs of the AIMCO
Operating Partnership are exclusively vested in the AIMCO GP. None of the
limited partners of the AIMCO Operating Partnership or any other person to whom
one or more OP Units have been transferred (each, an "Assignee") will take part
in the operations, management or control (within the meaning of the Delaware LP
Act) of the AIMCO Operating Partnership's business, transact any business in the
AIMCO Operating Partnership's name or have the power to sign documents for or
otherwise bind the AIMCO Operating Partnership. The AIMCO GP may not be removed
by the partners with or without cause, except with the consent of the AIMCO GP.
In addition to the powers granted a general partner of a limited partnership
under applicable law or that are granted to the AIMCO GP under any other
provision of the AIMCO Operating Partnership Agreement, the AIMCO GP, subject to
the other provisions of the AIMCO Operating Partnership Agreement, has full
power and authority to do all things deemed necessary or desirable by it to
conduct the business of the AIMCO Operating Partnership, to exercise all powers
of the AIMCO Operating Partnership and to effectuate the purposes of the AIMCO
Operating Partnership. The AIMCO Operating Partnership may incur debt or enter
into other similar credit, guarantee, financing or refinancing arrangements for
any purpose (including, without limitation, in connection with any acquisition
of properties) upon such terms as the AIMCO GP determines to be appropriate. The
AIMCO GP is authorized to execute, deliver and perform certain agreements and
transactions on behalf of the AIMCO Operating Partnership without any further
act, approval or vote of the partners.
Restrictions on AIMCO GP's Authority. The AIMCO GP may not take any action
in contravention of the AIMCO Operating Partnership Agreement. The AIMCO GP may
not, without the prior consent of the limited partners, undertake, on behalf of
the AIMCO Operating Partnership, any of the following actions or enter into any
transaction that would have the effect of such transactions: (i) except as
provided in the AIMCO Operating Partnership Agreement, amend, modify or
terminate the AIMCO Operating Partnership Agreement other than to reflect the
admission, substitution, termination or withdrawal of partners; (ii) make a
general assignment for the benefit of creditors or appoint or acquiesce in the
appointment of a custodian, receiver or trustee for all or any part of the
assets of the AIMCO Operating Partnership; (iii) institute any proceeding for
bankruptcy on behalf of the AIMCO Operating Partnership; or (iv) subject to
certain exceptions, approve or acquiesce to the transfer of the AIMCO Operating
Partnership interest of the AIMCO GP, or admit into the AIMCO Operating
Partnership any additional or successor general partners of the AIMCO Operating
Partnership.
Issuance of Additional OP Limited Partnership Interests. The AIMCO GP is
authorized to admit additional limited partners to the AIMCO Operating
Partnership from time to time, on terms and conditions and for such capital
contributions as may be established by the AIMCO GP in its reasonable
discretion. The net capital contribution need not be equal for all partners. No
action or consent by the limited partners is required in connection with the
admission of any additional limited partner. The AIMCO GP is expressly
authorized to cause the AIMCO Operating Partnership to issue additional
interests (i) upon the conversion, redemption or exchange of any debt, OP Units
or other securities issued by the AIMCO Operating
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Partnership, (ii) for less than fair market value, so long as the AIMCO GP
concludes in good faith that such issuance is in the best interests of the AIMCO
GP and the AIMCO Operating Partnership, and (iii) in connection with any merger
of any other entity into the AIMCO Operating Partnership if the applicable
merger agreement provides that persons are to receive interests in the AIMCO
Operating Partnership in exchange for their interests in the entity merging into
the AIMCO Operating Partnership. Subject to Delaware law, any additional
partnership interests may be issued in one or more classes, or one or more
series of any of such classes, with such designations, preferences and relative,
participating, optional or other special rights, powers and duties as shall be
determined by the AIMCO GP, in its sole and absolute discretion without the
approval of any limited partners, and set forth in a written document thereafter
attached to and made an exhibit to the AIMCO Operating Partnership Agreement.
Without limiting the generality of the foregoing, the AIMCO GP shall have
authority to specify (a) the allocations of items of partnership income, gain,
loss, deduction and credit to each such class or series of partnership
interests; (b) the right of each such class or series of partnership interests
to share in distributions by the AIMCO Operating Partnership; (c) the rights of
each such class or series of partnership interests upon dissolution and
liquidation of the AIMCO Operating Partnership; (d) the voting rights, if any,
of each such class or series of partnership interests; and (e) the conversion,
redemption or exchange rights applicable to each such class or series of
partnership interests. Interests in the AIMCO Operating Partnership that have
distribution rights, or rights upon liquidation, winding up or dissolution, that
are superior or prior to the Common OP Units are Preferred OP Units. No person
will be admitted as an additional limited partner without the consent of the
AIMCO GP, which consent may be given or withheld in the AIMCO GP's sole and
absolute discretion.
MANAGEMENT LIABILITY AND INDEMNIFICATION
Notwithstanding anything to the contrary set forth in the AIMCO Operating
Partnership Agreement, the AIMCO GP is not liable to the AIMCO Operating
Partnership for losses sustained, liabilities incurred or benefits not derived
as a result of errors in judgment or mistakes of fact or law of any act or
omission if the AIMCO GP acted in good faith. The AIMCO Operating Partnership
Agreement provides for indemnification of AIMCO, or any director or officer of
AIMCO (in its capacity as the previous general partner of the AIMCO Operating
Partnership), the AIMCO GP, any officer or director of AIMCO GP or the AIMCO
Operating Partnership and such other persons as the AIMCO GP may designate from
and against all losses, claims, damages, liabilities, joint or several, expenses
(including legal fees), fines, settlements and other amounts incurred in
connection with any actions relating to the operations of the AIMCO Operating
Partnership, as set forth in the AIMCO Operating Partnership Agreement. The
Delaware LP Act provides that subject to the standards and restrictions, if any,
set forth in its partnership agreement, a limited partnership may, and shall
have the power to, indemnify and hold harmless any partner or other person from
and against any and all claims and demands whatsoever. It is the position of the
SEC that indemnification of directors and officers for liabilities arising under
the Securities Act of 1933 is against public policy and is unenforceable
pursuant to Section 14 of the Securities Act of 1933.
COMPENSATION AND FEES
The AIMCO GP does not receive compensation for its services as general
partner of the AIMCO Operating Partnership. However, the AIMCO GP is entitled to
payments, allocations and distributions in its capacity as general partner of
the AIMCO Operating Partnership. In addition, the AIMCO Operating Partnership is
responsible for all expenses incurred relating to the AIMCO Operating
Partnership's ownership of its assets and the operation of the AIMCO Operating
Partnership and reimburses the AIMCO GP for such expenses paid by the AIMCO GP.
The employees of the AIMCO Operating Partnership receive compensation for their
services.
FIDUCIARY RESPONSIBILITIES
The directors and officers of the AIMCO GP have fiduciary duties to manage
the AIMCO GP in a manner beneficial to AIMCO, as the sole stockholder of the
AIMCO GP. At the same time, the AIMCO GP, as general partner, has fiduciary
duties to manage the AIMCO Operating Partnership in a manner beneficial
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to the AIMCO Operating Partnership and its partners. The duties of the AIMCO GP,
as general partner, to the AIMCO Operating Partnership and its partners,
therefore, may come into conflict with the duties of the directors and officers
of the AIMCO GP to its sole stockholder, AIMCO.
Unless otherwise provided for in the relevant partnership agreement,
Delaware law generally requires a general partner of a Delaware limited
partnership to adhere to fiduciary duty standards under which it owes its
limited partners the highest duties of good faith, fairness and loyalty and
which generally prohibit such general partner from taking any action or engaging
in any transaction as to which it has a conflict of interest. The AIMCO
Operating Partnership Agreement expressly authorizes the AIMCO GP to enter into,
on behalf of the AIMCO Operating Partnership, a right of first opportunity
arrangement and other conflict avoidance agreements with various affiliates of
the AIMCO Operating Partnership and the AIMCO GP, on such terms as the AIMCO GP,
in its sole and absolute discretion, believes are advisable. The latitude given
in the AIMCO Operating Partnership Agreement to the AIMCO GP in resolving
conflicts of interest may significantly limit the ability of a limited partner
to challenge what might otherwise be a breach of fiduciary duty. The AIMCO GP
believes, however, that such latitude is necessary and appropriate to enable it
to serve as the general partner of the AIMCO Operating Partnership without undue
risk of liability.
The AIMCO Operating Partnership Agreement expressly limits the liability of
the AIMCO GP by providing that the AIMCO GP, and its officers and directors will
not be liable or accountable in damages to the AIMCO Operating Partnership, the
limited partners or assignees for errors in judgment or mistakes of fact or law
or of any act or omission if the AIMCO GP or such director or officer acted in
good faith. In addition, the AIMCO Operating Partnership is required to
indemnify the AIMCO GP, its affiliates and their respective officers, directors,
employees and agents to the fullest extent permitted by applicable law, against
any and all losses, claims, damages, liabilities, joint or several, expenses,
judgments, fines and other actions incurred by the AIMCO GP or such other
persons, provided that the AIMCO Operating Partnership will not indemnify for
(i) willful misconduct or a knowing violation of the law or (ii) for any
transaction for which such person received an improper personal benefit in
violation or breach of any provision of the AIMCO Operating Partnership
Agreement.
The provisions of Delaware law that allow the common law fiduciary duties
of a general partner to be modified by a partnership agreement have not been
resolved in a court of law, and the AIMCO GP has not obtained an opinion of
counsel covering the provisions set forth in the AIMCO Operating Partnership
Agreement that purport to waive or restrict the fiduciary duties of the AIMCO GP
that would be in effect under common law were it not for the AIMCO Operating
Partnership Agreement. See "Risk Factors -- Risks Associated With an Investment
in OP Units -- Conflicts of Interest and Fiduciary Responsibility."
CLASS B PARTNERSHIP PREFERRED UNITS
On August 4, 1997, in connection with AIMCO's issuance of 750,000 shares of
Class B Preferred Stock, the AIMCO Operating Partnership issued 750,000 Class B
Partnership Preferred Units to the Special Limited Partner. The terms of the
Class B Partnership Preferred Units are substantially the same as the terms of
the Class B Preferred Stock. The Class B Partnership Preferred Units entitle the
Special Limited Partner to receive preferred quarterly cash distributions of
$1.78125 per unit or, if greater, the distributions then payable on Common OP
Units into which such Class B Partnership Preferred Units are convertible. On or
after August 4, 1998, upon the conversion of Class B Preferred Stock into Class
A Common Stock, a number of Class B Partnership Preferred Units equal to the
number of shares of Class B Preferred Stock so converted will be converted into
Common OP Units. The number of Common OP Units issued upon conversion of Class B
Partnership Preferred Units is determined by dividing the Class B Partnership
Preferred Unit's liquidation preference of $100 per unit by $30.45. In addition,
each Class B Partnership Preferred Unit has a priority in liquidation equal to
$100 per unit plus an amount equal to the accumulated, accrued and unpaid
dividends on a share of Class B Preferred Stock.
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CLASS C PARTNERSHIP PREFERRED UNITS
On December 23, 1997, in connection with AIMCO's issuance of 2,400,000
shares of Class C Preferred Stock, the AIMCO Operating Partnership issued
2,400,000 Class C Partnership Preferred Units to the Special Limited Partner.
The terms of the Class C Partnership Preferred Units are substantially the same
as the terms of the Class C Preferred Stock. The Class C Partnership Preferred
Units entitle the Special Limited Partner to receive preferred quarterly cash
distributions of $0.5625 per unit ($2.25 per annum). In addition, each Class C
Partnership Preferred Unit has a priority in liquidation equal to $25 per unit
plus an amount equal to the accumulated, accrued and unpaid dividends on a share
of Class C Preferred Stock.
CLASS D PARTNERSHIP PREFERRED UNITS
On February 19, 1998, in connection with AIMCO's issuance of 4,200,000
shares of Class D Preferred Stock, the AIMCO Operating Partnership issued
4,200,000 Class D Partnership Preferred Units to the Special Limited Partner.
The terms of the Class D Partnership Preferred Units are substantially the same
as the terms of the Class D Preferred Stock. The Class D Partnership Preferred
Units entitle the Special Limited Partner to receive preferred quarterly cash
distributions of $0.546875 ($2.1875 per annum). In addition, each Class D
Partnership Preferred Unit has a priority in liquidation equal to $25 per unit
plus an amount equal to the accumulated, accrued and unpaid dividends on a share
of Class D Preferred Stock.
CLASS E PARTNERSHIP PREFERRED UNITS
In connection with the Insignia Merger, AIMCO issued 8.4 million shares of
Class E Preferred Stock and reserved an additional 0.5 million shares for
options and warrants, in the aggregate. AIMCO contributed assets formerly held
by Insignia to the AIMCO Operating Partnership in exchange for Class E
Partnership Preferred Units issued to the Special Limited Partner. In accordance
with their terms, on January 15, 1999, each of the Class E Partnership Preferred
Units automatically converted into an equal number of Common OP Units.
CLASS F PARTNERSHIP PREFERRED UNITS
In connection with the Insignia Merger, AIMCO has assumed Insignia's
obligations under its 6 1/2% Convertible Subordinated Debentures due 2016 (the
"Convertible Debentures"), and the AIMCO Operating Partnership has issued Class
F Partnership Preferred Units to the Special Limited Partner that are
economically equivalent to the Convertible Debentures. The Convertible
Debentures bear interest at the rate of 6 1/2% per annum and are convertible
into shares of AIMCO Class E Preferred Stock at a price of $57.21. After the
conversion of Class E Preferred Stock into Class A Common Stock, the Convertible
Debentures will be convertible into shares of Class A Common Stock at a
conversion price that is adjusted for the $50 million dividend paid on the Class
E Preferred Stock. The Class F Partnership Preferred Units have a liquidation
value of $50 per Class F Partnership Preferred Unit, plus an amount per Class F
Partnership Unit equal to all accrued and unpaid interest on Convertible
Debentures in a principal amount of $50 to the date of final distribution to
holders of Class F Partnership Preferred Units (but such holders would not be
entitled to any further payment). Holders of Class F Partnership Preferred Units
are entitled to receive, on any date on which payments of interest or principal
are made on Convertible Debentures, distributions payable in cash in an amount
per Class F Partnership Preferred Unit equal to the interest and principal
payment made in respect of Convertible Debentures in a principal amount of $50
on such distribution date. Class F Partnership Preferred Units are redeemable by
the AIMCO Operating Partnership at any time that AIMCO redeems all or any of the
Convertible Debentures, in number equal to the quotient obtained by dividing the
aggregate principal amount of Convertible Debentures so redeemed by $50, at a
price per Class F Partnership Preferred Unit equal to the price paid by AIMCO to
redeem Convertible Debentures in a principal amount of $50. Upon any conversion
of Convertible Debentures into shares of AIMCO Class E Preferred Stock or Class
A Common Stock, a number of Class F Partnership Preferred Units equal to the
quotient obtained by dividing the aggregate principal amount of Convertible
Debentures so converted by $50 will be converted into Class E Partnership
Preferred Units or Partnership Common Units, respectively. The conversion ratio
in effect from time to time for such conversion of Class F Partnership Preferred
Units into Class E Partnership Preferred
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Units or Partnership Common Units will be equal to, and automatically adjusted
to reflect, the conversion ratio in effect from time to time for the conversion
of Convertible Debentures in a principal amount equal to $50 into shares of
AIMCO's Class E Preferred Stock or Class A Common Stock, as the case may be. The
Class F Partnership Preferred Units may be owned and held solely by AIMCO GP or
the Special Limited Partner.
CLASS G PARTNERSHIP PREFERRED UNITS
On July 15, 1998, in connection with AIMCO's issuance of 4,050,000 shares
of Class G Preferred Stock, the AIMCO Operating Partnership issued 4,050,000
Class G Partnership Preferred Units to the Special Limited Partner. The terms of
the Class G Partnership Preferred Units are substantially the same as the terms
of the Class G Preferred Stock. The Class G Partnership Preferred Units entitle
the Special Limited Partner to receive preferred quarterly cash distributions of
$0.5859375 ($2.34375 per annum). In addition, each Class G Partnership Preferred
Unit has a priority in liquidation equal to $25 per unit plus an amount equal to
the accumulated, accrued and unpaid dividends on a share of Class G Preferred
Stock.
CLASS H PARTNERSHIP PREFERRED UNITS
On August 11, 1998, in connection with AIMCO's issuance of 2,000,000 shares
of Class H Preferred Stock, the AIMCO Operating Partnership issued 2,000,000
Class H Partnership Preferred Units to the Special Limited Partner. The terms of
the Class H Partnership Preferred Units are substantially the same as the terms
of the Class H Preferred Stock. The Class H Partnership Preferred Units entitle
the Special Limited Partner to receive preferred quarterly cash distributions of
$0.59375 ($2.375 per annum). In addition, each Class H Partnership Preferred
Unit has a priority in liquidation equal to $25 per unit plus an amount equal to
the accumulated, accrued and unpaid dividends on a share of Class H Preferred
Stock.
CLASS J PARTNERSHIP PREFERRED UNITS
On November 6, 1998, in connection with AIMCO's issuance of 1,250,000
shares of Class J Preferred Stock, the AIMCO Operating Partnership issued
1,250,000 Class J Partnership Preferred Units to the Special Limited Partner.
The terms of the Class J Partnership Preferred Units are substantially the same
as the terms of the Class J Preferred Stock. The Class J Partnership Preferred
Units entitle the Special Limited Partner to receive preferred quarterly cash
distributions of (i) $1.75 from November 6 through November 15, 1998, (ii) $2.00
from November 15, 1998 through November 15, 1999, (iii) $2.25 from November 15,
1999 through November 15, 2000 and (iv) $2.38 thereafter. Each Class J
Partnership Preferred Unit has a priority in liquidation equal to $100 per unit
plus an amount equal to the accumulated, accrued and unpaid dividends on a share
of Class J Preferred Stock.
CLASS K PARTNERSHIP PREFERRED UNITS
On February 18, 1999, in connection with AIMCO's issuance of 5,000,000
shares of Class K Preferred Stock, the AIMCO Operating Partnership issued
5,000,000 Class K Partnership Preferred Units to the Special Limited Partner.
The terms of the Class K Partnership Preferred Units are substantially the same
as the terms of the Class K Preferred Stock. The Class K Partnership Preferred
Units entitle the Special Limited Partner to receive preferred quarterly
distributions per unit equal to (i) for three years from the date of original
issuance, the greater of $0.50 or the quarterly cash distribution paid or
payable on the number of Common OP Units into which one Class K Partnership
Preferred Unit is convertible, and (ii) thereafter, the greater of $0.625 or the
quarterly cash distribution paid or payable on the number of Common OP Units
into which one Class K Partnership Preferred Unit is convertible. In addition,
each Class K Partnership Preferred Unit has a priority in liquidation equal to
$25 per unit plus an amount equal to the accumulated, accrued and unpaid
dividends on a share of Class K Preferred Stock. Upon conversion of any shares
of Class K Preferred Stock into Class A Common Stock, an equal number of Class K
Partnership Preferred Units will be converted into Common OP Units at a
conversion ratio of 0.59524 Partnership Common Units for each Class K
Partnership Preferred Unit.
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CLASS ONE PARTNERSHIP PREFERRED UNITS
On December 30, 1998, the AIMCO Operating Partnership, in connection with
the acquisition of an apartment complex, issued 90,000 Class One Partnership
Preferred Units. The Class One Partnership Preferred Units rank, with respect to
distribution rights and rights upon liquidation, dissolution or winding up of
the AIMCO Operating Partnership: (i) prior or senior to Partnership Common Units
(the "Common Units"), Class B Partnership Preferred Units, Class C Partnership
Preferred Units, Class D Partnership Preferred Units, Class E Partnership
Preferred Units, Class G Partnership Preferred Units, Class H Partnership
Preferred Units, the Class J Partnership Preferred Units, the High Performance
Units and any other interest in the AIMCO Operating Partnership if the holders
of the Class One Partnership Preferred Units are entitled to the receipt of
distributions and amounts distributable upon liquidation, dissolution or winding
up in preference or priority to the holders of such interest; (ii) on a parity
with any other interest in the AIMCO Operating Partnership if the holders of
such interest and the Class One Partnership Preferred Units are entitled to the
receipt of distributions and amounts distributable upon liquidation, dissolution
or winding up in proportion to their respective amounts of accumulated, accrued
and unpaid distributions or stated preferences, without preference or priority
of one over the other; and (iii) junior to any other interest in the AIMCO
Operating Partnership if the holders of such interest are entitled to the
receipt of distributions or amounts distributable upon liquidation, dissolution
or winding up in preference or priority to the holders of the Class One
Partnership Preferred Units.
Holders of Class One Partnership Preferred Units are entitled to receive,
when and as declared by the Board of Directors of the general partner of the
AIMCO Operating Partnership, quarterly cash distributions at the rate of $2 per
Class One Partnership Preferred Unit. Such distributions are cumulative from the
date of original issue, whether or not in any distribution period or periods
such distributions have been declared, and will be payable quarterly on February
15, May 15, August 15 and November 15 of each year (or, if not a business day,
the next succeeding business day), commencing on the first such date occurring
after the date of original issue. Distributions will be payable in arrears to
holders of record as they appear on the records of the AIMCO Operating
Partnership at the close of business on the February 1, May 1, August 1 or
November 1, as the case may be, immediately preceding each distribution date.
Holders of Class One Partnership Preferred Units are not be entitled to receive
any distributions in excess of cumulative distributions on the Class One
Partnership Preferred Units.
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the AIMCO Operating Partnership, before any allocation of income or gain by the
AIMCO Operating Partnership will be made to or set apart for the holders of any
junior units, to the extent possible, the holders of Class One Partnership
Preferred Units will be entitled to be allocated income and gain to effectively
enable them to receive a liquidation preference per Class One Partnership
Preferred Unit equal to the sum of (i) the quotient obtained by dividing $8 by
the lesser of (a) the dividend yield on the AIMCO Class D Cumulative Preferred
Stock as of the date of such liquidation, dissolution or winding up, or (b) the
average of the dividend yields of the three specified preferred stocks plus (ii)
accumulated, accrued and unpaid distributions (whether or not earned or
declared) to the date of final distribution to such holders; but such holders
will not be entitled to any further payment or allocation.
After a one-year holding period, a holder may redeem Class One Partnership
Preferred Units and, in exchange therefor, the AIMCO Operating Partnership will
deliver, or shall cause AIMCO to deliver, at its option, (i) cash in an amount
equal to the number of redeemed Class One Partnership Preferred Units multiplied
by the quotient obtained by dividing $8 by the lesser of (a) the dividend yield
on the AIMCO Class D Cumulative Preferred Stock as of the date such Class One
Partnership Preferred Units are tendered for redemption or (b) the average of
the dividend yields of the three specified preferred stocks, or (ii) a number of
shares of Class A Common Stock of AIMCO that is equal in value to the amount
determined in (i).
The holders of the Class One Partnership Preferred Units have the same
voting rights as holders of Common OP Units.
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HIGH PERFORMANCE UNITS
In January 1998, the AIMCO Operating Partnership sold an aggregate of
15,000 High Performance Units to a joint venture formed by fourteen of AIMCO's
officers and to three of AIMCO's independent directors, Messrs. Martin, Rhodes
and Smith. Holders of High Performance Units have no rights to receive
distributions or allocations of income or loss, or to redeem their High
Performance Units prior to the Valuation Date that is the earlier of (i) January
1, 2001, or (ii) the date on which a change of control (as defined in the AIMCO
Operating Partnership Agreement) occurs. If, on the Valuation Date, the
cumulative Total Return of the Class A Common Stock during the Measurement
Period exceeds the Minimum Return, then, on and after the Valuation Date,
holders of the 15,000 High Performance Units will be entitled to receive
distributions and allocations of income and loss from the AIMCO Operating
Partnership in the same amounts and at the same times (subject to certain
exceptions upon liquidation of the AIMCO Operating Partnership) as would holders
of a number of Common OP Units equal to the quotient obtained by dividing (i)
the product of (A) 15% of the amount by which the cumulative Total Return of the
Class A Common Stock over the Measurement Period exceeds the greater of 115% of
the peer group index or the Minimum Return, multiplied by (B) the weighted
average market value of AIMCO's equity capitalization (including Class A Common
Stock and Common OP Units) by (ii) the market value of one share of Class A
Common Stock on the Valuation Date. If, on the Valuation Date, the cumulative
Total Return of the Class A Common Stock does not satisfy these criteria, then,
on and after the Valuation Date, holders of the 15,000 High Performance Units
will be entitled to receive distributions and allocations of income and loss
from the AIMCO Operating Partnership in the same amounts and at the same times
(subject to certain exceptions upon a liquidation of the AIMCO Operating
Partnership) as would holders of 150 Common OP Units. For purposes of
determining the market value of Class A Common Stock or Common OP Units as of
any date, the average closing price of the Class A Common Stock for the 20
trading days immediately preceding such date is used. It is expected that the
Morgan Stanley REIT Index, a capitalization-weighted index with dividends
reinvested of the most actively traded REITs, will be used as the peer group
index for purposes of the High Performance Units.
Upon the occurrence of a change of control, any holder of High Performance
Units may, subject to certain restrictions, require the AIMCO Operating
Partnership to redeem all or a portion of the High Performance Units held by
such party in exchange for (i) a cash payment per unit equal to the estimated
proceeds that a holder of one unit would be entitled to receive in the event of
a liquidation of the AIMCO Operating Partnership, or (ii) a number of shares of
Class A Common Stock with a value equal to such cash payment. The AIMCO
Operating Partnership may elect, in its sole discretion, to pay cash or direct
AIMCO to issue shares to satisfy any such redemption.
DISTRIBUTIONS
Preferred OP Units. Holders of Preferred OP Units to be issued hereunder
will have rights to distributions as set forth in the Prospectus Supplement.
With respect to rights of holders of Class B Partnership Preferred Units, Class
C Partnership Preferred Units, Class D Partnership Preferred Units, Class F
Partnership Preferred Units, Class G Partnership Preferred Units, Class H
Partnership Preferred Units, Class J Partnership Preferred Units, Class K
Partnership Preferred Units and Class One Partnership Preferred Units, see
"-- Class B Partnership Preferred Units; -- Class C Partnership Preferred Units;
- -- Class D Partnership Preferred Units; -- Class F Partnership Preferred Units;
- -- Class G Partnership Preferred Units; -- Class H Partnership Preferred Units,
- -- Class J Partnership Preferred Units, -- Class K Partnership Preferred Units
and -- Class One Partnership Preferred Units."
High Performance Units. On and after the Valuation Date, holders of High
Performance Units may be entitled to receive distributions in accordance with
the terms of the High Performance Units. See "-- High Performance Units."
Common OP Units. Subject to the rights of holders of any outstanding
Preferred OP Units, the AIMCO Operating Partnership Agreement requires the AIMCO
GP to cause the AIMCO Operating Partnership to distribute quarterly all, or such
portion as the AIMCO GP may in its sole and absolute discretion determine, of
Available Cash (as defined in the AIMCO Operating Partnership Agreement)
generated by the AIMCO
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Operating Partnership during such quarter to the AIMCO GP, the Special Limited
Partner and the holders of Common OP Units ("Common OP Unitholders") on the
record date established by the AIMCO GP with respect to such quarter, in
accordance with their respective interests in the AIMCO Operating Partnership on
such record date. Holders of any other Preferred OP Units issued in the future
may have priority over the AIMCO GP, the Special Limited Partner and holders of
Common OP Units with respect to distributions of Available Cash, distributions
upon liquidation or other distributions.
Distributions payable with respect to any interest in the AIMCO Operating
Partnership that was not outstanding during the entire quarterly period in
respect of which any distribution is made will be prorated based on the portion
of the period that such interest was outstanding. The AIMCO GP in its sole and
absolute discretion may distribute to the OP Unitholders Available Cash on a
more frequent basis and provide for an appropriate record date. The AIMCO
Operating Partnership Agreement requires the AIMCO GP to take such reasonable
efforts, as determined by it in its sole and absolute discretion and consistent
with AIMCO's qualification as a REIT, to cause the AIMCO Operating Partnership
to distribute sufficient amounts to enable the AIMCO GP to transfer funds to
AIMCO and enable AIMCO to pay stockholder dividends that will (i) satisfy the
requirements (the "REIT Requirements") for qualifying as a REIT under the
Internal Revenue Code, and the Treasury Regulations and (ii) avoid any federal
income or excise tax liability of AIMCO.
No Common OP Unitholder has any right to demand or receive property other
than cash as provided in the AIMCO Operating Partnership Agreement. The AIMCO GP
may determine, in its sole and absolute discretion, to make a distribution in
kind of assets of the AIMCO Operating Partnership to the OP Unitholders, and
such assets will be distributed in such a fashion as to ensure that the fair
market value is distributed and allocated in accordance with the AIMCO Operating
Partnership Agreement.
Subject to the rights of holders of any outstanding Preferred OP Units, net
proceeds from the sale or other disposition of all or substantially all of the
assets of the AIMCO Operating Partnership or a related series of transactions
that, taken together, result in the sale or other disposition of all or
substantially all of the assets of the AIMCO Operating Partnership (a
"Terminating Capital Transaction"), and any other cash received or reductions in
reserves made after commencement of the liquidation of the AIMCO Operating
Partnership, will be distributed to the OP Unitholders in accordance with the
AIMCO Operating Partnership Agreement.
The AIMCO Operating Partnership Agreement prohibits the AIMCO Operating
Partnership and the AIMCO GP, on behalf of the AIMCO Operating Partnership, from
making a distribution to any OP Unitholder on account of its interest in OP
Units if such distribution would violate Section 17-607 of the Delaware LP Act
or other applicable law.
ALLOCATIONS OF NET INCOME AND NET LOSS
Preferred OP Units. With respect to the Class B Partnership Preferred
Units, the Class C Partnership Preferred Units, the Class D Partnership
Preferred Units, the Class F Partnership Preferred Units, the Class G
Partnership Preferred Units, the Class H Partnership Preferred Units, the Class
J Partnership Preferred Units, the Class K Partnership Preferred Units, the
Class One Partnership Preferred Units and any similar class of Preferred OP Unit
that may be subsequently issued, gross income and, if necessary, gain will be
allocated to the holders of the Preferred OP Units for any fiscal year (and, if
necessary, subsequent fiscal years) to the extent that the holders of the
Preferred OP Units receive a distribution on any Preferred OP Units (other than
an amount included in any redemption of Preferred OP Units). If any Preferred OP
Units are redeemed, for the fiscal year that includes such redemption (and, if
necessary, for subsequent fiscal years) (i) gross income and gain (in such
relative proportions as the AIMCO GP in its discretion will determine) will be
allocated to the holders of such class of Preferred OP Units to the extent that
the redemption amounts paid or payable with respect to the Preferred OP Units so
redeemed exceeds the aggregate capital contributions (net of liabilities assumed
or taken subject to by the AIMCO Operating Partnership) per Preferred OP Unit
allocable to the Preferred OP Units so redeemed and (ii) deductions and losses
(in such relative proportions as the AIMCO GP in its discretion will determine)
will be allocated to the holders of such
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<PAGE> 406
class of Preferred OP Units to the extent that the aggregate Capital
Contributions (net of liabilities assumed or taken subject to by the AIMCO
Operating Partnership) per Preferred OP Unit allocable to the Preferred OP Units
so redeemed exceeds the redemption amount paid or payable with respect to the
Preferred OP Units so redeemed.
High Performance Units. On and after the Valuation Date, holders of High
Performance Units may be allocated income and loss in accordance with the terms
of the High Performance Units. See "-- High Performance Units."
Common OP Units. Net Income (as defined in the AIMCO Operating Partnership
Agreement) and Net Loss (as defined in the AIMCO Operating Partnership
Agreement) of the AIMCO Operating Partnership will be determined and allocated
with respect to each fiscal year of the AIMCO Operating Partnership as of the
end of each such year. Except as otherwise provided in the AIMCO Operating
Partnership Agreement, an allocation to a Common OP Unitholder of a share of Net
Income or Net Loss will be treated as an allocation of the same share of each
item of income, gain, loss or deduction that is taken into account in computing
Net Income or Net Loss. Except as otherwise provided in the AIMCO Operating
Partnership Agreement and subject to the terms of any outstanding Partnership
Preferred Units, Net Income and Net Loss will be allocated to the holders of
Common OP Units in accordance with their respective Common OP Units at the end
of each fiscal year. The AIMCO Operating Partnership Agreement contains
provisions for special allocations intended to comply with certain regulatory
requirements, including the requirements of Treasury Regulations Sections
1.704-1(b) and 1.704-2. Except as otherwise provided in the AIMCO Operating
Partnership Agreement and subject to the terms of any outstanding Preferred OP
Units, for income tax purposes under the Internal Revenue Code and the Treasury
Regulations, each Partnership item of income, gain, loss and deduction will be
allocated among the Common OP Unitholders in the same manner as its correlative
item of "book" income, gain, loss or deduction is allocated pursuant to the
AIMCO Operating Partnership Agreement.
WITHHOLDING
The AIMCO Operating Partnership is authorized to withhold from or pay on
behalf of or with respect to each limited partner any amount of federal, state,
local or foreign taxes that the AIMCO GP determines that the AIMCO Operating
Partnership is required to withhold or pay with respect to any amount
distributable or allocable to such limited partner pursuant to the AIMCO
Operating Partnership Agreement.
RETURN OF CAPITAL
No limited partner is entitled to interest on its capital contribution or
on such limited partner's capital account. Except (i) pursuant to the rights of
redemption set forth in the AIMCO Operating Partnership Agreement, (ii) as
provided by law, or (iii) pursuant to the terms of any outstanding Preferred OP
Units, no limited partner has any right to demand or receive the withdrawal or
return of its capital contribution from the AIMCO Operating Partnership, except
to the extent of distributions made pursuant to the AIMCO Operating Partnership
Agreement or upon termination of the AIMCO Operating Partnership. Except to the
extent otherwise expressly provided in the AIMCO Operating Partnership Agreement
and subject to the terms of any outstanding Preferred OP Units, no limited
partner or assignee will have priority over any other limited partner or
assignee either as to the return of capital contributions or as to profits,
losses or distributions.
REDEMPTION RIGHTS
Preferred OP Units. Holders of Preferred OP Units to be issued hereunder
will have rights to redemption as set forth in the applicable Prospectus
Supplement. With respect to rights of holders of Class B Partnership Preferred
Units, Class C Partnership Preferred Units, Class D Partnership Preferred Units,
Class F Partnership Preferred Units, Class G Partnership Preferred Units, Class
H Partnership Preferred Units, Class J Partnership Preferred Units, Class K
Partnership Preferred Units and Class One Partnership Preferred Units, see
"-- Class B Partnership Preferred Units; -- Class C Partnership Preferred Units;
- -- Class D Partnership Preferred Units; -- Class F Partnership Preferred Units;
- -- Class G Partnership Preferred Units;
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<PAGE> 407
- -- Class H Partnership Preferred Units; -- Class J Partnership Preferred Units;
- -- Class K Partnership Preferred Units; and Class One Partnership Preferred
Units."
High Performance Units. In the event of a change of control, holders of
High Performance Units will have redemption rights similar to those of holders
of Common OP Units. See "-- High Performance Units."
Common OP Units. After the first anniversary of becoming a holder of Common
OP Units, each Common OP Unitholder and certain assignees have the right,
subject to the terms and conditions set forth in the AIMCO Operating Partnership
Agreement, to require the AIMCO Operating Partnership to redeem all or a portion
of the Common OP Units held by such party in exchange for shares of Class A
Common Stock, on a one-for-one basis, or a cash amount equal to the value of
such shares. On or before the close of business on the fifth business day after
the AIMCO GP receives a notice of redemption, the AIMCO Operating Partnership
may, in its sole and absolute discretion but subject to the restrictions on the
ownership of Class A Common Stock imposed under the AIMCO Charter and the
transfer restrictions and other limitations thereof, elect to cause AIMCO to
acquire some or all of the tendered Common OP Units from the tendering party in
exchange for Class A Common Stock, based on an exchange ratio of one share of
Class A Common Stock for each Common OP Unit, subject to adjustment as provided
in the AIMCO Operating Partnership Agreement.
PARTNERSHIP RIGHT TO CALL COMMON OP UNITS
Notwithstanding any other provision of the AIMCO Operating Partnership
Agreement, on and after the date on which the aggregate percentage interests of
the limited partners, other than the Special Limited Partner, are less than one
percent (1%), the AIMCO Operating Partnership will have the right, but not the
obligation, from time to time and at any time to redeem any and all outstanding
limited partner interests (other than the Special Limited Partner's interest) in
the AIMCO Operating Partnership by treating any limited partner as if such
limited partner had tendered for redemption pursuant to the AIMCO Operating
Partnership Agreement the amount of Common OP Units specified by the AIMCO GP,
in its sole and absolute discretion, by notice to the limited partner.
TRANSFERS AND WITHDRAWALS
Restrictions on Transfer. The AIMCO Operating Partnership Agreement
restricts the transferability of OP Units. Any transfer or purported transfer of
an OP Unit not made in accordance with the AIMCO Operating Partnership Agreement
will be null and void ab initio. Until the expiration of one year from the date
on which a limited partner acquired OP Units, subject to certain exceptions,
such limited partner may not transfer all or any portion of its OP Units to any
transferee without the consent of the AIMCO GP, which consent may be withheld in
its sole and absolute discretion. After the expiration of one year from the date
on which a limited partner acquired OP Units, such limited partner has the right
to transfer all or any portion of its OP Units to any person, subject to the
satisfaction of certain conditions specified in the AIMCO Operating Partnership
Agreement, including the AIMCO GP's right of first refusal. It is a condition to
any transfer (regardless of whether such transfer is effected before or after
the one year holding period) that the transferee assumes by operation of law or
express agreement all of the obligations of the transferor limited partner under
the AIMCO Operating Partnership Agreement with respect to such OP Units, and no
such transfer (other than pursuant to a statutory merger or consolidation
wherein all obligations and liabilities of the transferor partner are assumed by
a successor corporation by operation of law) will relieve the transferor partner
of its obligations under the AIMCO Operating Partnership Agreement without the
approval of the AIMCO GP, in its sole and absolute discretion.
In connection with any transfer of OP Units, the AIMCO GP will have the
right to receive an opinion of counsel reasonably satisfactory to it to the
effect that the proposed transfer may be effected without registration under the
Securities Act of 1933 and will not otherwise violate any federal or state
securities laws or regulations applicable to the AIMCO Operating Partnership or
the OP Units transferred.
No transfer by a limited partner of its OP Units (including any redemption
or any acquisition of OP Units by the AIMCO GP or by the AIMCO Operating
Partnership) may be made to any person if (i) in the
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opinion of legal counsel for the AIMCO Operating Partnership, it would result in
the AIMCO Operating Partnership being treated as an association taxable as a
corporation, or (ii) such transfer is effectuated through an "established
securities market" or a "secondary market (or the substantial equivalent
thereof)" within the meaning of Section 7704 of the Internal Revenue Code.
Substituted Limited Partners. No limited partner will have the right to
substitute a transferee as a limited partner in its place. A transferee of the
interest of a limited partner may be admitted as a substituted limited partner
only with the consent of the AIMCO GP, which consent may be given or withheld by
the AIMCO GP in its sole and absolute discretion. If the AIMCO GP, in its sole
and absolute discretion, does not consent to the admission of any permitted
transferee as a substituted limited partner, such transferee will be considered
an assignee for purposes of the AIMCO Operating Partnership Agreement. An
assignee will be entitled to all the rights of an assignee of a limited
partnership interest under the Delaware LP Act, including the right to receive
distributions from the AIMCO Operating Partnership and the share of Net Income,
Net Losses and other items of income, gain, loss, deduction and credit of the
AIMCO Operating Partnership attributable to the OP Units assigned to such
transferee and the rights to transfer the OP Units provided in the AIMCO
Operating Partnership Agreement, but will not be deemed to be a limited partner
for any other purpose under the AIMCO Operating Partnership Agreement, and will
not be entitled to effect a consent or vote with respect to such OP Units on any
matter presented to the limited partners for approval (such right to consent or
vote, to the extent provided in this Agreement or under the Delaware LP Act,
fully remaining with the transferor limited partner).
Withdrawals. No limited partner may withdraw from the AIMCO Operating
Partnership other than as a result of a permitted transfer of all of such
limited partner's OP Units in accordance with the AIMCO Operating Partnership
Agreement, with respect to which the transferee becomes a substituted limited
partner, or pursuant to a redemption (or acquisition by AIMCO) of all of such
limited partner's OP Units.
Restrictions on the General Partner. The AIMCO GP may not transfer any of
its general partner interest or withdraw from the AIMCO Operating Partnership
unless (i) the limited partners consent or (ii) immediately after a merger of
the AIMCO GP into another entity, substantially all of the assets of the
surviving entity, other than the general partnership interest in the AIMCO
Operating Partnership held by the AIMCO GP, are contributed to the AIMCO
Operating Partnership as a capital contribution in exchange for OP Units.
ISSUANCE OF CAPITAL STOCK BY AIMCO
Pursuant to the AIMCO Operating Partnership Agreement, upon the issuance of
its capital stock, AIMCO is generally obligated to contribute the cash proceeds
or other consideration received from such issuance to the AIMCO Operating
Partnership in exchange for, in the case of Class A Common Stock, Common OP
Units, or in the case of an issuance of Preferred Stock, Preferred OP Units with
designations, preferences and other rights, terms and provisions that are
substantially the same as the designations, preferences and other rights, terms
and provisions of such Preferred Stock.
DILUTION
The AIMCO GP has the power, without the consent of the limited partners, to
cause the AIMCO Operating Partnership to issue additional Common OP Units and
Preferred OP Units. Any such issuance may dilute the interests of existing OP
Unitholders. In addition, the terms of the Preferred OP Units entitle the
holders thereof to receive preferential distributions of cash and a priority in
liquidation, as well as certain class voting rights.
AMENDMENT OF THE AIMCO OPERATING PARTNERSHIP AGREEMENT
By the AIMCO GP Without the Consent of the Limited Partners. The AIMCO GP
has the power, without the consent of the limited partners, to amend the AIMCO
Operating Partnership Agreement as may be required to facilitate or implement
any of the following purposes: (1) to add to the obligations of the AIMCO GP or
surrender any right or power granted to the AIMCO GP or any affiliate of the
AIMCO GP for
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the benefit of the limited partners; (2) to reflect the admission, substitution
or withdrawal of partners or the termination of the AIMCO Operating Partnership
in accordance with the AIMCO Operating Partnership Agreement; (3) to reflect a
change that is of an inconsequential nature and does not adversely affect the
limited partners in any material respect, or to cure any ambiguity, correct or
supplement any provision in the AIMCO Operating Partnership Agreement not
inconsistent with law or with other provisions, or make other changes with
respect to matters arising under the AIMCO Operating Partnership Agreement that
will not be inconsistent with law or with the provisions of the AIMCO Operating
Partnership Agreement; (4) to satisfy any requirements, conditions or guidelines
contained in any order, directive, opinion, ruling or regulation of a federal or
state agency or contained in federal or state law; (5) to reflect such changes
as are reasonably necessary for AIMCO to maintain its status as a REIT; and (6)
to modify the manner in which capital accounts are computed (but only to the
extent set forth in the definition of "Capital Account" in the AIMCO Operating
Partnership Agreement or contemplated by the Internal Revenue Code or the
Treasury Regulations).
With the Consent of the Limited Partners. With the exception of the
circumstances described above whereby the AIMCO GP may, without the consent of
the limited partners, amendments to the AIMCO Operating Partnership Agreement
require the limited partners' consent. Amendments to the AIMCO Operating
Partnership Agreement may be proposed by the AIMCO GP or by limited partners
holding a majority of the outstanding Common OP Units, excluding the Special
Limited Partner (a "Majority in Interest"). Following such proposal, the AIMCO
GP will submit any proposed amendment to the limited partners. The AIMCO GP will
seek the written consent of the limited partners on the proposed amendment or
will call a meeting to vote thereon and to transact any other business that the
AIMCO GP may deem appropriate. For purposes of obtaining a written consent, the
AIMCO GP may require a written response within a reasonable specified time, but
not less than fifteen (15) days, and failure to respond in such time period
shall constitute a consent that is consistent with the AIMCO GP's recommendation
with respect to the proposal, provided, however, that an action shall become
effective at such time as requisite consents are received even if prior to such
specified time.
PROCEDURES FOR ACTIONS AND CONSENTS OF PARTNERS
Meetings of the partners may be called by the AIMCO GP and will be called
upon the receipt by the AIMCO GP of a written request by a Majority in Interest
of the limited partners. Notice of any such meeting will be given to all
partners not less than seven (7) days nor more than thirty (30) days prior to
the date of such meeting. Partners may vote in person or by proxy at such
meeting. Each meeting of partners will be conducted by the AIMCO GP or such
other person as the AIMCO GP may appoint pursuant to such rules for the conduct
of the meeting as the AIMCO GP or such other person deems appropriate in its
sole and absolute discretion. Any action required or permitted to be taken at a
meeting of the partners may be taken without a meeting if a written consent
setting forth the action so taken is signed by partners holding a majority of
outstanding Common OP Units (or such other percentage as is expressly required
by the AIMCO Operating Partnership Agreement for the action in question). Such
consent may be in one instrument or in several instruments, and shall have the
same force and effect as a vote of the partners holding a majority of
outstanding Common OP Units (or such other percentage as is expressly required
by the AIMCO Operating Partnership Agreement for the action in question). Such
consent shall be filed with the AIMCO GP. An action so taken shall be deemed to
have been taken at a meeting held on the effective date so certified.
RECORDS AND ACCOUNTING; FISCAL YEAR
The AIMCO Operating Partnership Agreement requires the AIMCO GP to keep or
cause to be kept at the principal office of the AIMCO Operating Partnership
those records and documents required to be maintained by the Delaware LP Act and
other books and records deemed by the AIMCO GP to be appropriate with respect to
the AIMCO Operating Partnership's business. The books of the AIMCO Operating
Partnership will be maintained, for financial and tax reporting purposes, on an
accrual basis in accordance with generally accepted accounting principles, or on
such other basis as the AIMCO GP determines to be necessary or appropriate. To
the extent permitted by sound accounting practices and
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principles, the AIMCO Operating Partnership, the AIMCO GP and AIMCO may operate
with integrated or consolidated accounting records, operations and principles.
The fiscal year of the AIMCO Operating Partnership is the calendar year.
REPORTS
As soon as practicable, but in no event later than one hundred five (105)
days after the close of each calendar quarter and each fiscal year, the AIMCO GP
will cause to be mailed to each limited partner, of record as of the last day of
the calendar quarter or as of the close of the fiscal year, as the case may be,
a report containing financial statements of the AIMCO Operating Partnership, or
of AIMCO if such statements are prepared solely on a consolidated basis with
AIMCO, for such calendar quarter or fiscal year, as the case may be, presented
in accordance with generally accepted accounting principles, and such other
information as may be required by applicable law or regulation or as the AIMCO
GP determines to be appropriate. Statements included in quarterly reports are
not audited. Statements included in annual reports are audited by a nationally
recognized firm of independent public accountants selected by the AIMCO GP.
TAX MATTERS
The AIMCO GP is the "tax matters partner" of the AIMCO Operating
Partnership for federal income tax purposes. The tax matters partner is
authorized, but not required, to take certain actions on behalf of the AIMCO
Operating Partnership with respect to tax matters. In addition, the AIMCO GP
will arrange for the preparation and timely filing of all returns with respect
to the AIMCO Operating Partnership's income, gains, deductions, losses and other
items required of the AIMCO Operating Partnership for federal and state income
tax purposes and will use all reasonable effort to furnish, within ninety (90)
days of the close of each taxable year, the tax information reasonably required
by limited partners for federal and state income tax reporting purposes. The
limited partners will promptly provide the AIMCO GP with such information as may
be reasonably requested by the AIMCO GP from time to time.
DISSOLUTION AND WINDING UP
Dissolution. The AIMCO Operating Partnership will dissolve, and its affairs
will be wound up, upon the first to occur of any of the following (each a
"Liquidating Event") (i) December 31, 2093; (ii) an event of withdrawal, as
defined in the Delaware LP Act (including, without limitation, bankruptcy), of
the sole general partner unless, within ninety (90) days after the withdrawal, a
"majority in interest" (as such phrase is used in Section 17-801(3) of the
Delaware LP Act) of the remaining partners agree in writing, in their sole and
absolute discretion, to continue the business of the AIMCO Operating Partnership
and to the appointment, effective as of the date of withdrawal, of a successor
general partner; (iii) an election to dissolve the AIMCO Operating Partnership
made by the general partner in its sole and absolute discretion, with or without
the consent of the limited partners; (iv) entry of a decree of judicial
dissolution of the AIMCO Operating Partnership pursuant to the provisions of the
Delaware LP Act; (v) the occurrence of a Terminating Capital Transaction; or
(vi) the redemption (or acquisition by AIMCO, the AIMCO GP and/or the Special
Limited Partner) of all Common OP Units other than Common OP Units held by the
AIMCO GP or the Special Limited Partner.
Winding Up. Upon the occurrence of a Liquidating Event, the AIMCO Operating
Partnership will continue solely for the purposes of winding up its affairs in
an orderly manner, liquidating its assets and satisfying the claims of its
creditors and partners. The AIMCO GP (or, in the event that there is no
remaining AIMCO GP or the AIMCO GP has dissolved, become bankrupt within the
meaning of the Delaware LP Act or ceased to operate, any person elected by a
Majority in Interest of the limited partners) will be responsible for overseeing
the winding up and dissolution of the AIMCO Operating Partnership and will take
full account of the AIMCO Operating Partnership's liabilities and property, and
the AIMCO Operating Partnership's property will be liquidated as promptly as is
consistent with obtaining the fair value thereof, and the proceeds therefrom
(which may, to the extent determined by the AIMCO GP, include Class A Common
Stock) will be applied and distributed in the following order: (i) first, to the
satisfaction of all of the AIMCO Operating Partnership's debts and liabilities
to creditors other than the partners and their assignees (whether by payment
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or the making of reasonable provision for payment thereof); (ii) second, to the
satisfaction of all the AIMCO Operating Partnership's debts and liabilities to
the general partner (whether by payment or the making of reasonable provision
for payment thereof), including, but not limited to, amounts due as
reimbursements under the AIMCO Operating Partnership Agreement; (ii) third, to
the satisfaction of all of the AIMCO Operating Partnership's debts and
liabilities to the other partners and any assignees (whether by payment or the
making of reasonable provision for payment thereof); (iv) fourth, to the
satisfaction of all liquidation preferences of outstanding Preferred OP Units,
if any, and (v) the balance, if any, to the AIMCO GP, the limited partners and
any assignees in accordance with and in proportion to their positive capital
account balances, after giving effect to all contributions, distributions and
allocations for all periods.
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COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND AIMCO
Generally, the nature of an investment in the Common OP Units is
substantially equivalent economically to an investment in the Class A Common
Stock. The AIMCO Operating Partnership makes quarterly distributions to holders
of Common OP Units (on a per unit basis) that generally are equal to the
dividends paid on the Class A Common Stock (on a per share basis). However, such
distributions will not necessarily continue to be equal to such dividends.
Common OP Unitholders generally share in the risks and rewards of ownership in
the enterprise being conducted by AIMCO (through the AIMCO Operating
Partnership). However, there are some differences between ownership of Common OP
Units and ownership of Class A Common Stock, some of which may be material to
investors.
The information below highlights a number of the significant differences
between the AIMCO Operating Partnership and AIMCO relating to, among other
things, form of organization, permitted investments, policies and restrictions,
management structure, compensation and fees, investor rights and federal income
taxation, and compares certain legal rights associated with the ownership of
Common OP Units and Class A Common Stock, respectively. These comparisons are
intended to assist OP Unitholders in understanding how their investment will be
changed if their Common OP Units are exchanged for Class A Common Stock. COMMON
OP UNITHOLDERS SHOULD CAREFULLY REVIEW THE BALANCE OF THIS PROSPECTUS AND THE
REGISTRATION STATEMENT AND THE EXHIBITS THERETO OF WHICH THIS PROSPECTUS IS A
PART AND ANY APPLICABLE PROSPECTUS SUPPLEMENT FOR ADDITIONAL IMPORTANT
INFORMATION ABOUT THE COMPANY.
AIMCO OPERATING PARTNERSHIP
AIMCO
Form of Organization and Assets Owned
<TABLE>
<S> <C>
The AIMCO Operating Partnership is organized AIMCO is a Maryland corporation. AIMCO has
as a Delaware limited partnership. The AIMCO elected to be taxed as a REIT under the
Operating Partnership owns interests (either Internal Revenue Code, commencing with its
directly or through subsidiaries) in the taxable year ended December 31, 1994, and
apartment properties. intends to maintain its election as a REIT.
With certain limited exceptions, AIMCO's
only significant assets are its equity
interests in the AIMCO GP and the Special
Limited Partner, which in turn collectively
hold a controlling interest in the AIMCO
Operating Partnership.
</TABLE>
Duration of Existence
<TABLE>
<S> <C>
The term of the AIMCO Operating Partnership AIMCO has a perpetual existence, unless
continues until December 31, 2093, unless liquidated or dissolved.
the AIMCO Operating Partnership is dissolved
sooner pursuant to the terms of the AIMCO
Operating Partnership Agreement or as
provided by law. See "Description of OP
Units -- General" and "Description of OP
Units -- Dissolution and Winding Up."
</TABLE>
Purpose and Permitted Activities/Investments
<TABLE>
<S> <C>
The purpose of the AIMCO Operating Under its Charter, AIMCO may engage in any
Partnership is to conduct any business that lawful activity permitted to be engaged in
may be lawfully conducted by a limited by a Maryland corporation pursuant to
partnership organized pursuant to the Maryland law. The Charter prohibits the
Delaware LP Act, provided that such business AIMCO Board of Directors from taking any
is to be conducted in a manner that permits action to terminate AIMCO's status as a
AIMCO to be qualified as a REIT, unless REIT, unless the AIMCO Board of
AIMCO
</TABLE>
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AIMCO OPERATING PARTNERSHIP AIMCO
<TABLE>
<S> <C>
ceases to qualify as a REIT. The AIMCO Directors recommends such action and the
Operating Partnership is authorized to holders of a majority of the shares entitled
perform any and all acts for the furtherance to vote on such matter approve such action.
of the purposes and business of the AIMCO The Internal Revenue Code defines a REIT as
Operating Partnership, provided that the a corporation, trust or association (1) that
AIMCO Operating Partnership may not take, or is managed by one or more trustees or
refrain from taking, any action which, in directors; (2) the beneficial ownership of
the judgment of the AIMCO GP could (i) which is evidenced by transferable shares,
adversely affect the ability of AIMCO to or by transferable certificates of
continue to qualify as a REIT, (ii) subject beneficial interest; (3) which would be
AIMCO to certain income and excise taxes, or taxable as a domestic corporation, but for
(iii) violate any law or regulation of any the special Internal Revenue Code provisions
governmental body or agency (unless such ac- applicable to REITs; (4) that is neither a
tion, or inaction, is specifically consented financial institution nor an insurance
to by AIMCO). Subject to the foregoing, the company subject to certain provisions of the
AIMCO Operating Partnership may invest in or Internal Revenue Code; (5) the beneficial
enter into partnerships, joint ventures, or ownership of which is held by 100 or more
similar arrangements persons; (6) in which, during the last half
of each taxable year, not more than 50% in
value of the outstanding stock is owned,
directly or indirectly, by five or fewer
individuals (as defined in the Internal
Revenue Code to include certain entities);
and (7) which meets certain other tests
described in this Prospectus (including with
respect to the nature of its income and
assets). See "Federal Income Taxation of
AIMCO and AIMCO Stockholders -- General."
The Internal Revenue Code provides that
conditions (1) through (4) must be met
during the entire taxable year, and that
condition (5) must be met during at least
335 days of a taxable year of 12 months, or
during a proportionate part of a taxable
year of less than 12 months. The Charter
also contains certain restrictions regarding
transfers of its shares, which provisions
are intended to assist AIMCO in satisfying
the share ownership requirements described
in conditions (5) and (6) above. See
"Federal Income Taxation of AIMCO and AIMCO
Stockholders -- General."
Substantially all of the operations of AIMCO
are conducted through the AIMCO Operating
Partnership and its subsidiaries. Through
its controlling interests in the AIMCO
Operating Partnership and other limited
partnerships and limited liability com-
panies, AIMCO owns and controls interests in
numerous multi-family rental apartment
properties.
</TABLE>
Additional Equity
<TABLE>
<S> <C>
The AIMCO GP is authorized to issue Under the Charter, the AIMCO Board of
additional partnership interests in the Directors has the authority to classify and
AIMCO Operating Partnership for any reclassify any of its unissued capital stock
partnership purpose from time to time to the into shares of Preferred Stock by setting or
limited partners and to other persons, and changing in any one or more respects the
to admit such other persons as additional preferences, conversion or other rights,
limited partners, on terms and conditions voting powers, restrictions, limitations as
and for such capi- to dividends, qual-
</TABLE>
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AIMCO OPERATING PARTNERSHIP AIMCO
<TABLE>
<S> <C>
tal contributions as may be established by ifications or terms or conditions of
the AIMCO GP in its sole discretion. The net redemption of such shares of capital stock
capital contribution need not be equal for including, but not limited to, ownership
all partners. No action or consent by the restrictions consistent with the Ownership
limited partners is required in connection Limit with respect to each series or class
with the admission of any additional limited of capital stock, and the number of shares
partner. See "Description of OP Units -- constituting each series or class, and to
Management by the AIMCO GP." Subject to increase or decrease the number of shares of
Delaware law, any additional partnership any such series or class, to the extent
interests may be issued in one or more permitted by the MGCL. AIMCO is authorized
classes, or one or more series of any of to issue, in its discretion, additional eq-
such classes, with such designations, pref- uity securities including Class A Common
erences and relative, participating, Stock or Preferred Stock; provided, however,
optional or other special rights, powers and that the total number of equity securities
duties as shall be determined by the AIMCO outstanding may not exceed the total number
GP, in its sole and absolute discretion of authorized shares set forth in the
without the approval of any limited part- Charter (i.e., not more than 510,750,000
ner, and set forth in a written document shares of capital stock). Additionally,
thereafter attached to and made an exhibit AIMCO may issue additional Class A Common
to the AIMCO Operating Partnership Stock upon exchange of Common OP Units for
Agreement. Class A Common Stock, and upon exercise of
options granted pursuant to AIMCO's stock
incentive plan. Pursuant to the AIMCO
Operating Partnership Agreement, upon the
issuance of its capital stock, AIMCO is
generally obligated to contribute the cash
proceeds or other consideration received
from such issuance to the AIMCO Operating
Partnership in exchange for, in the case of
Class A Common Stock, Common OP Units, or in
the case of an issuance of Preferred Stock,
Preferred OP Units with designations,
preferences and other rights, terms and
provisions that are substantially the same
as the designations, preferences and other
rights, terms and provisions of such
Preferred Stock. See "Description of OP
Units -- Issuance of Class A Common Stock by
AIMCO."
Neither AIMCO's Charter nor its By-Laws
impose any restrictions upon dealings
between AIMCO and its directors, officers
and affiliates. Under Maryland law, however,
material facts of the relationship, the
transaction and the conflict of interest
must (i) be disclosed to the Board of
Directors and approved by the affirmative
vote of a majority of the disinterested
directors; or (ii) be disclosed to the
stockholders and approved by the affirmative
vote of a majority of the disinterested
stockholders or (iii) be in fact fair and
reasonable. In addition, AIMCO has adopted
certain policies designed to minimize or
eliminate conflicts of interests between
AIMCO and its executive officers and
directors. Without the approval of a ma-
jority of the disinterested directors, AIMCO
will not (i) acquire from or sell to any
director, officer or employee of AIMCO or
any entity in which a director, officer or
employee of AIMCO owns more
</TABLE>
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AIMCO OPERATING PARTNERSHIP AIMCO
<TABLE>
<S> <C>
than a 1% interest, or acquire from or sell
to any affiliate of any of the foregoing,
any assets or other property of AIMCO, (ii)
make any loan to or borrow from any of the
foregoing persons, or (iii) engage in any
material transaction with the foregoing. In
addition, AIMCO has entered into employment
agreements with certain officers and
directors which include provisions intended
to eliminate or minimize potential conflicts
of interest. See "Business of the
Company -- Policies of the Company with
Respect to Certain Other Activities."
</TABLE>
Borrowing Policies
<TABLE>
<S> <C>
The AIMCO Operating Partnership Agreement AIMCO is not restricted under its Charter or
contains no restrictions on borrowings, and Bylaws from incurring borrowings.
the AIMCO GP has full power and authority to
borrow money on behalf of the AIMCO
Operating Partnership.
</TABLE>
Review of Investor Lists
<TABLE>
<S> <C>
Each limited partner has the right, upon Under Maryland law, a stockholder holding at
written demand with a statement of the least 5% of the outstanding stock of a
purpose of such demand and at such limited corporation may, upon written request,
partner's own expense, to obtain a current inspect and copy during usual business hours
list of the name and last known business, the list of the stockholders of such
residence or mailing address of the AIMCO GP corporation.
and each other partner.
</TABLE>
Management Control
<TABLE>
<S> <C>
All management powers over the business and The AIMCO Board of Directors has exclusive
affairs of the AIMCO Operating Partnership control over AIMCO's business and affairs
are vested in the AIMCO GP. No limited subject only to the restrictions in the
partner has any right to participate in or Charter and the Bylaws. The policies adopted
exercise control or management power over by the AIMCO Board of Directors may be
the business and affairs of the AIMCO altered or eliminated without a vote of
Operating Partnership. The limited partners AIMCO's stockholders. Accordingly, except
have the right to vote on certain matters for their vote in the election of directors,
described under "Voting Rights" below. The holders of Class A Common Stock have no
AIMCO GP may not be removed by the limited control over the ordinary business policies
partners with or without cause. of AIMCO.
</TABLE>
Management Liability and Indemnification
<TABLE>
<S> <C>
Notwithstanding anything to the contrary set The Charter limits the liability of AIMCO's
forth in the AIMCO Operating Partnership directors and officers to AIMCO and its
Agreement, the AIMCO GP is not liable to the stockholders to the fullest extent permitted
AIMCO Operating Partnership for losses from time to time by Maryland law. Maryland
sustained, liabilities incurred or benefits law presently permits the liability of
not derived as a result of errors in judg- directors and officers to a corporation or
ment or mistakes of fact or law of any act its stockholders for money damages to be
or omission if the AIMCO GP acted in good limited, except (i) to the extent that it is
faith. The AIMCO Operating Partnership proved that the director or officer actually
Agreement provides for indemnification of received an improper benefit or profit in
AIMCO, or any director or money, property or services actu-
</TABLE>
66
<PAGE> 416
<TABLE>
<S> <C>
AIMCO OPERATING PARTNERSHIP AIMCO
officer of AIMCO (in its capacity as the ally received, or (ii) if a judgment or
previous general partner of the AIMCO other final adjudication is entered in a
Operating Partnership), the AIMCO GP, any proceeding based on a finding that the
officer or director of AIMCO GP or the AIMCO director's or officer's action, or failure
Operating Partnership and such other persons to act, was the result of active and
as the AIMCO GP may designate from and deliberate dishonesty and was material to
against all losses, claims, damages, the cause of action adjudicated in the
liabilities, joint or several, expenses proceeding. This provision does not limit
(including legal fees), fines, settlements the ability of AIMCO or its stockholders to
and other amounts incurred in connection obtain other relief, such as an injunction
with any actions relating to the operations or recision.
of the AIMCO Operating Partnership, as set
forth in the AIMCO Operating Partnership The Charter and Bylaws require AIMCO to
Agreement. The Delaware LP Act provides that indemnify its directors, officers and
subject to the standards and restrictions, certain other parties to the fullest extent
if any, set forth in its partnership permitted from time to time by Maryland law.
agreement, a limited partnership may, and The MGCL permits a corporation to indemnify
shall have the power to, indemnify and hold its directors, officers and certain other
harmless any partner or other person from parties against judgments, penalties, fines,
and against any and all claims and demands settlements and reasonable expenses actually
whatsoever. It is the position of the SEC incurred by them in connection with any
that indemnification of directors and proceeding to which they may be made a party
officers for liabilities arising under the by reason of their service to or at the
Securities Act is against public policy and request of the corporation, unless it is
is unenforceable pursuant to Section 14 of established that (i) the act or omission of
the Securities Act of 1933. the indemnified party was material to the
matter giving rise to the proceeding and (x)
was committed in bad faith or (y) was the
result of active and deliberate dishon-
esty, (ii) the indemnified party actually
received an improper personal benefit in
money, property or services of (iii) in the
case of any criminal proceeding, the
indemnified party had reasonable cause to
believe that the act or omission was
unlawful. Indemnification may be made
against judgments, penalties, fines,
settlements and reasonable expenses actually
incurred by the director or officer in
connection with the proceeding; provided
however, that if the proceeding is one by or
in the right of the corporation,
indemnification may not be made with respect
to any proceeding in which the director or
officer has been adjudged to be liable to
the corporation. In addition, a director or
officer may not be indemnified with respect
to any proceeding charging improper personal
benefit to the director or officer was
adjudged to be liable on the basis that
personal benefit was improperly received.
The termination of any proceeding by
conviction, or upon a plea of nolo
contendere or its equivalent, or an entry of
any order of probation prior to judgment,
creates a rebuttable presumption that the
director or officer did not meet the
requisite standard or conduct required for
indemnification to be permitted. It is the
position of the SEC that indemnification of
directors and officers for liabilities
arising under the Securities Act of 1933 is
against public policy and is unenforceable
pursuant to Section 14 of the Securities Act
of 1933.
</TABLE>
67
<PAGE> 417
AIMCO OPERATING PARTNERSHIP AIMCO
<TABLE>
<S> <C>
AIMCO has entered into agreements with
certain of its officers, pursuant to which
AIMCO has agreed to indemnify such officers
to the fullest extent permitted by
applicable law.
</TABLE>
Anti-Takeover Provisions
<TABLE>
<S> <C>
Except in limited circumstances, the AIMCO The Charter and Bylaws of AIMCO contain a
GP has exclusive management power over the number of provisions that may have the
business and affairs of the AIMCO Operating effect of delaying or discouraging an
Partnership. The AIMCO GP may not be removed unsolicited proposal for the acquisition of
as general partner of the AIMCO Operating AIMCO or the removal of incumbent
Partnership by the limited partners with or management. These provisions include, among
without cause. Under the AIMCO Operating others: (1) authorized shares of stock that
Partnership Agreement, the AIMCO GP, as a may be issued, in the discretion of the
general partner, may, in its sole AIMCO Board of Directors, as Preferred Stock
discretion, prevent a transferee of an OP with superior voting rights to the Class A
Unit from becoming a substituted limited Common Stock; (2) a requirement that
partner pursuant to the AIMCO Operating directors may be removed only for cause and
Partnership Agreement. The AIMCO GP may by a vote of holders of at least two-thirds
exercise this right of approval to deter, of the votes entitled to be cast in the
delay or hamper attempts by persons to ac- election of directors; (3) advance notice
quire a controlling interest in the AIMCO required in order to nominate persons for
Operating Partnership. Additionally, the election to the AIMCO Board of Directors or
AIMCO Operating Partnership Agreement to propose business to be considered by
contains restrictions on the ability of stockholders at a stockholder's meeting; and
limited partners to transfer their OP Units. (4) provisions designed to avoid
See "Description of OP Units -- Transfers concentration of stock ownership in a manner
and Withdrawals." that would jeopardize AIMCO's status as a
REIT under the Internal Revenue Code. See
"Description of Common Stock -- Restrictions
on Transfer" and "Risk Factors --Ownership
Limit."
The MGCL contains provisions concerning
certain "business combinations" and "control
share acquisitions" (each as defined in the
MGCL) that could have the effect of
discouraging offers to acquire AIMCO and of
increasing the difficulty of consummating
any such offer. See "Description of Common
Stock -- Business Combinations" and
"Description of Common Stock -- Control
Share Acquisitions."
</TABLE>
Amendment of the Partnership Agreement or the Charter and Bylaws
<TABLE>
<S> <C>
With the exception of certain circumstances AIMCO may amend, alter or repeal any
set forth in the AIMCO Operating Partnership provision contained in its Charter upon (i)
Agreement, whereby the AIMCO GP may, without adoption by the AIMCO Board of Directors of
the consent of the limited partners, amend a resolution recommending such amendment,
the AIMCO Operating Partnership Agreement, alteration, or repeal, (ii) presentation by
amendments to the AIMCO Operating the AIMCO Board of Directors to the
Partnership Agreement require the consent of stockholders of a resolution at an annual or
the limited partners holding a majority of special meeting of the stockholders and
the outstanding Common OP Units, excluding (iii) approval of such resolution by the
the Special Limited Partner and certain affirmative vote of the holders of a
other lim- majority (or, in certain cases,
</TABLE>
68
<PAGE> 418
AIMCO OPERATING PARTNERSHIP AIMCO
<TABLE>
<S> <C>
ited exclusions (a "Majority in Interest"). two-thirds) of the aggregate number of votes
Amendments to the AIMCO Operating entitled to be cast generally in the
Partnership Agreement may be proposed by the election of directors.
AIMCO GP or by holders of a Majority in
Interest. Following such proposal, the AIMCO Under the MGCL, unless otherwise provided in
GP will submit any proposed amendment to the a corporation's charter, a proposed charter
limited partners. The AIMCO GP will seek the amendment requires an affirmative vote of
written consent of the limited partners on two-thirds of the outstanding stock entitled
the proposed amendment or will call a to be cast on the matter. However, the
meeting to vote thereon. See "Description of Charter provides that it may be amended upon
OP Units -- Amendment of the AIMCO Operating the affirmative vote of a majority (or, as
Partnership Agreement." applicable, two-thirds) of the stock
entitled to be cast generally in the
election of directors ("voting stock").
Under the MGCL, the power to adopt, alter,
and repeal the bylaws is vested in the
stockholders, except to the extent that the
charter or bylaws vest it in the board of
directors. The Bylaws provide that they may
be amended by vote of a majority of the
AIMCO Board of Directors. An amendment to
any provision of the Bylaws relating to
their repeal or the removal of directors may
be effected only by the vote of two-thirds
of the voting stock.
</TABLE>
Compensation and Fees
<TABLE>
<S> <C>
The AIMCO GP does not receive compensation The employees, officers and directors of
for its services as general partner of the AIMCO receive compensation for their
AIMCO Operating Partnership. However, the services.
AIMCO GP is entitled to payments,
allocations and distributions in its
capacity as general partner of the AIMCO
Operating Partnership. In addition, the
AIMCO Operating Partnership is responsible
for all expenses incurred relating to the
AIMCO Operating Partnership's ownership of
its assets and the operation of the AIMCO
Operating Partnership and reimburses the
AIMCO GP for such expenses paid by the AIMCO
GP. The employees of the AIMCO Operating
Partnership receive compensation for their
services.
</TABLE>
Liability of Investors
<TABLE>
<S> <C>
Except for fraud, willful misconduct or The MGCL provides that no stockholder of a
gross negligence, no limited partner has corporation will be personally liable for
personal liability for the AIMCO Operating any obligations of such corporation.
Partnership's debts and obligations, and Generally the liability of stockholders for
liability of the limited partners for the AIMCO's debts and obligations is limited to
AIMCO Operating Partnership's debts and the amount of their investment in AIMCO.
obligations is generally limited to the
amount of their investment in the AIMCO
Operating Partnership. However, the
limitations on the liability of limited
partners for the obligations of a limited
partnership have not been clearly
established in some states. If it were
determined that the AIMCO Operating Part-
nership had been conducting business in any
state
</TABLE>
69
<PAGE> 419
AIMCO OPERATING PARTNERSHIP AIMCO
<TABLE>
<S> <C>
without compliance with the applicable
limited partnership statute, or that the
right or the exercise of the right by the
limited partners holding OP Units as a group
to make certain amendments to the AIMCO
Operating Partnership Agreement or to take
other action pursuant to the AIMCO Operating
Partnership Agreement constituted
participation in the "control" of the AIMCO
Operating Partnership's business, then a
limited partner could be held liable under
certain circumstances for the AIMCO Oper-
ating Partnership's obligations to the same
extent as the general partner.
</TABLE>
Fiduciary Duties
<TABLE>
<S> <C>
Unless otherwise provided for in the Under Maryland law, the members of the AIMCO
relevant partnership agreement, Delaware law Board of Directors must perform their duties
generally requires a general partner of a in good faith, in a manner that they
Delaware limited partnership to adhere to reasonably believe to be in the best
fiduciary duty standards under which it owes interests of AIMCO and with the care of an
its limited partners the highest duties of ordinarily prudent person in a like
good faith, fairness and loyalty and which position. Members of the AIMCO Board of
generally prohibit such general partner from Directors who act in such a manner will
taking any action or engaging in any generally not be liable to AIMCO for
transaction as to which it has a conflict of monetary damages arising from their
interest. The AIMCO Operating Partnership activities as members of the AIMCO Board of
Agreement expressly authorizes the AIMCO GP Directors.
to enter into, on behalf of the AIMCO
Operating Partnership, a right of first
opportunity arrangement and other conflict
avoidance agreements with various affiliates
of the AIMCO Operating Partnership and the
AIMCO GP, on such terms as the AIMCO GP, in
its sole and absolute discretion, believes
are advisable. The AIMCO Operating
Partnership Agreement expressly limits the
liability of the AIMCO GP by providing that
the AIMCO GP, and its officers and directors
will not be liable or accountable in damages
to the AIMCO Operating Partnership, the
limited partners or assignees for errors in
judgment or mistakes of fact or law or of
any act or omission if the AIMCO GP or such
director or officer acted in good faith. See
"Risk Factors -- Risks Associated With an
Investment in OP Units -- Conflicts of
Interest and Fiduciary Responsibility" and
"Description of OP Units -- Fiduciary
Responsibilities."
</TABLE>
Federal Income Taxation
<TABLE>
<S> <C>
The AIMCO Operating Partnership is not AIMCO has elected to be taxed as a REIT
subject to federal income taxes. Instead, beginning with its fiscal year ended
each OP Unitholder includes in income its December 31, 1994. So long as it qualifies
allocable share of the AIMCO Operating as a REIT, AIMCO will be permitted to deduct
Partnership's taxable income or loss when it distributions paid to its stockholders,
determines its individual federal income tax which effectively will reduce the "double
liability. taxation" that typically results when a
corporation
</TABLE>
70
<PAGE> 420
AIMCO OPERATING PARTNERSHIP AIMCO
<TABLE>
<S> <C>
earns income and distributes that income to
its stockholders in the form of dividends. A
qualified REIT, however, is subject to
federal income tax on income that is not
distributed and also may be subject to
federal income and excise taxes in certain
circumstances. The maximum federal income
tax rate for corporations under current law
is 35%, but in certain circumstances a REIT
is subject to a 100% tax on certain kinds of
income.
Income and loss from the AIMCO Operating Dividends paid by AIMCO will be treated as
Partnership may be subject to the passive "portfolio" income and cannot be offset with
activity limitations. If an investment in an losses from "passive activities."
OP Unit is treated as a passive activity,
income and loss from the AIMCO Operating
Partnership generally can be offset against
income and loss from other investments that
constitute "passive activities" (unless the
AIMCO Operating Partnership is considered a
"publicity traded partnership", in which
case income and loss from the AIMCO
Operating Partnership can only be offset
against other income and loss from the AIMCO
Operating Partnership). Income of the AIMCO
Operating Partnership, however, attributable
to dividends from the management companies
or interest paid by the management companies
does not qualify as passive activity income
and cannot be offset against losses from
"passive activities."
Cash distributions by the AIMCO Operating Distributions by AIMCO to its taxable
Partnership are not taxable to an OP domestic stockholders out of current or
Unitholder except to the extent they exceed accumulated earnings and profits will be
such Partner's basis in its interest in the taxed as ordinary income. Distributions that
AIMCO Operating Partnership (which will are designated as capital gain dividends
include such OP Unitholder's allocable share generally will be taxed as long-term capital
of the AIMCO Operating Partnership's nonre- gain, subject to certain limitations. A
course debt). distribution in excess of current or
accumulated earnings and profits will be
treated as a non-taxable return of basis to
the extent of a stockholder's adjusted basis
in its shares of stock of AIMCO with respect
to which such distribution is received, with
the excess, if any, taxed as capital gain.
Each year, OP Unitholders receive a Schedule Each year, stockholders of AIMCO receive a
K-1 tax form containing tax information for Form 1099 used by REITs to report dividends
inclusion in preparing their federal income paid to their stockholders.
tax returns.
OP Unitholders are required, in some cases, Stockholders who are individuals generally
to file state income tax returns and/or pay will not be required to file state income
state income taxes in the states in which tax returns and/or pay state income taxes
the AIMCO Operating Partnership owns outside of their states of residence solely
property or transacts business, even if they as a result of the fact that AIMCO owns
are not residents of those states. The AIMCO property or transacts business in various
Operating Partnership may be required to pay jurisdictions. AIMCO may be required to pay
state income taxes in certain states. state income taxes in various states.
</TABLE>
71
<PAGE> 421
COMPARISON OF COMMON OP UNITS AND CLASS A COMMON STOCK
COMMON OP UNITS
CLASS A COMMON STOCK
Nature of Investment
<TABLE>
<S> <C>
The Common OP Units constitute equity The Class A Common Stock constitute equity
interests entitling each OP Unitholder to interests in AIMCO. Dividends are paid, when
his or her pro rata share of cash and as declared by the AIMCO Board of
distributions made from Available Cash (as Directors. In order to qualify as a REIT,
such term is defined in the AIMCO Operating AIMCO is required to distribute dividends
Partnership Agreement) to the partners of (other than capital gain dividends) to its
the AIMCO Operating Partnership. stockholders in an amount at least equal to
(A) the sum of (i) 95% of AIMCO's "REIT
taxable income" (computed without regard to
the dividends paid deduction and AIMCO's net
capital gain) and (ii) 95% of the net income
(after tax), if any, from foreclosure
property, minus (B) the sum of certain items
of noncash income.
</TABLE>
Voting Rights
<TABLE>
<S> <C>
Under the AIMCO Operating Partnership Agree- Each outstanding share of Class A Common
ment, the limited partners have voting Stock entitles the holder thereof to one
rights only with respect to certain limited vote on all matters submitted to
matters such as certain amendments and stockholders for vote, including the
termination of the AIMCO Operating election of directors. See "Description of
Partnership Agreement and certain trans- Common Stock -- Class A Common Stock."
actions such as the institution of Holders of Class A Common Stock have the
bankruptcy proceedings, an assignment for right to vote on, among other things, a
the benefit of creditors and certain merger of AIMCO, amendments to the Charter
transfers by the AIMCO GP of its interest in and the dissolution of AIMCO. Certain
the AIMCO Operating Partnership or the amendments to the Charter require the
admission of a successor general partner. affirmative vote of not less than two-thirds
of votes entitled to be cast on the matter.
The Charter permits the AIMCO Board of
Directors to classify and issue capital
stock in one or more series having voting
power which may differ from that of the
Class A Common Stock.
Under Maryland law, a consolidation, merger,
share exchange or transfer of all or
substantially all of the assets of AIMCO
requires the affirmative vote of not less
than two-thirds of all of the votes entitled
to be cast on the matter. With respect to
each of these transactions, only the holders
of Class A Common Stock are entitled to vote
on the matters. No approval of the
stockholders is required for the sale of
less than all or substantially all of
AIMCO's assets.
Maryland law provides that the AIMCO Board
of Directors must obtain the affirmative
vote of at least two-thirds of the votes
entitled to be cast on the matter in order
to dissolve AIMCO. Only the holders of Class
A Common Stock are entitled to vote on
AIMCO's dissolution.
</TABLE>
72
<PAGE> 422
COMMON OP UNITS CLASS A COMMON STOCK
Distributions
<TABLE>
<S> <C>
Subject to the rights of holders of any Holders of the Class A Common Stock are
outstanding Preferred OP Units, the AIMCO entitled to received dividends, when and as
Operating Partnership Agreement requires the declared by the AIMCO Board of Directors,
AIMCO GP to cause the AIMCO Operating out of funds legally available therefor. See
Partnership to distribute quarterly all, or "Per Share and Per Unit Data."
such portion as the AIMCO GP may in its sole
and absolute discretion determine, of Holders of Class B Common Stock do not have
Available Cash generated by the AIMCO dividend rights. A certain number of shares
Operating Partnership during such quarter to of Class B Common Stock are eligible for
the AIMCO GP, the Special Limited Partner conversion into an equal number of shares of
and the holders of Common OP Units on the Class A Common Stock. Once Class B Common
record date established by the AIMCO GP with Stock has been converted into Class A Common
respect to such quarter, in accordance with Stock, holders of such shares of converted
their respective interests in the AIMCO Class A Common Stock will have dividend
Operating Partnership on such record date. rights of Class A Common Stock generally.
Holders of any other Preferred OP Units See "Description of Common Stock -- Class B
issued in the future may have priority over Common Stock."
the AIMCO GP, the Special Limited Partner
and holders of Common OP Units with respect AIMCO, in order to qualify as a REIT, is
to distributions of Available Cash, required to distribute dividends (other than
distributions upon liquidation or other capital gain dividends) to its stockholders
distributions. See "Per Share and Per Unit in an amount at least equal to (A) the sum
Data." of (i) 95% of AIMCO's "REIT taxable income"
The AIMCO GP in its sole and absolute (computed without regard to the dividends
discretion may distribute to the OP paid deduction and AIMCO's net capital gain)
Unitholders Available Cash on a more and (ii) 95% of the net income (after tax),
frequent basis and provide for an if any, from foreclosure property, minus (B)
appropriate record date. The AIMCO Operating the sum of certain items of noncash income.
Partnership Agreement requires the AIMCO GP See "Federal Income Taxation of AIMCO and
to take such reasonable efforts, as AIMCO Stockholders -- General."
determined by it in its sole and absolute
discretion and consistent with AIMCO's
qualification as a REIT, to cause the AIMCO
Operating Partnership to distribute suffi-
cient amounts to enable the AIMCO GP to
transfer funds to AIMCO and enable AIMCO to
pay stockholder dividends that will (i)
satisfy the requirements for qualifying as a
REIT under the Code, and the Treasury
Regulations and (ii) avoid any federal
income or excise tax liability of AIMCO. See
"Description of OP Units -- Distributions."
</TABLE>
Liquidity and Transferability/Redemption
<TABLE>
<S> <C>
There is no public market for the OP Units The Class A Common Stock is transferable
and the OP Units are not listed on any subject to the Ownership Limit set forth in
securities exchange. the Charter. The Class A Common Stock is
listed on the NYSE.
Pursuant to the AIMCO Operating Partnership
Agreement, until the expiration of one year
from the date on which an OP Unitholder
acquired OP Units, subject to certain
exceptions, such OP Unitholder may not
transfer all or any portion of its OP Units
to any transferee without the consent of the
AIMCO GP, which consent may be withheld in
its sole and absolute discretion. After the
expiration of
</TABLE>
73
<PAGE> 423
COMMON OP UNITS CLASS A COMMON STOCK
<TABLE>
<S> <C>
one year, such OP Unitholder has the right
to transfer all or any portion of its OP
Units to any person, subject to the
satisfaction of certain conditions specified
in the AIMCO Operating Partnership
Agreement, including the AIMCO GP's right of
first refusal. See "Description of OP
Units -- Transfers and Withdrawals."
After the first anniversary of becoming a
holder of Common OP Units, an OP Unitholder
has the right, subject to the terms and
conditions of the AIMCO Operating
Partnership Agreement, to require the AIMCO
Operating Partnership to redeem all or a
portion of the Common OP Units held by such
party in exchange for shares of Class A
Common Stock or a cash amount equal to the
value of such shares, as the AIMCO Operating
Partnership may elect. See "Description of
OP Units -- Redemption Rights." Upon receipt
of a notice of redemption, the AIMCO
Operating Partnership may, in its sole and
absolute discretion but subject to the
restrictions on the ownership of Class A
Common Stock imposed under the AIMCO Charter
and the transfer restrictions and other
limitations thereof, elect to cause AIMCO to
acquire some or all of the tendered Common
OP Units in exchange for Class A Common
Stock, based on an exchange ratio of one
share of Class A Common Stock for each
Common OP Unit, subject to adjustment as
provided in the AIMCO Operating Partnership
Agreement.
</TABLE>
74
<PAGE> 424
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF THE AIMCO OPERATING PARTNERSHIP
OVERVIEW
For purposes of this "Management's Discussion and Analysis of Financial
Condition and Results of Operations of the AIMCO Operating Partnership," the
AIMCO Operating Partnership, together with its subsidiaries, other controlled
entities and entities in which it has a controlling financial interest, is
referred to as the "Company". The following discussion and analysis of the
results of operations and financial condition of the Company should be read in
conjunction with the audited financial statements of the AIMCO Operating
Partnership included in this Prospectus. See "AIMCO Properties, L.P. -- Index to
Financial Statements."
RESULTS OF OPERATIONS
Comparison of the Nine Months Ended September 30, 1998 to the Nine Months
Ended September 30, 1997
Net Income
The Company recognized net income of $51.8 million for the nine months
ended September 30, 1998, compared to $16.8 million for the nine months ended
September 30, 1997. The increase in net income of $35.0 million, or 208%, was
primarily the result of a significant increase in the number of owned properties
and a significant increase in investments in unconsolidated subsidiaries and
real estate partnerships during 1997 (the "1997 Acquisitions"), and the
acquisition of Ambassador and the purchase of nineteen properties during the
first nine months of 1998 (the "1998 Acquisitions"). The increase in net income
was partially offset by the sale of five properties in 1997 (the "1997 Sold
Properties") and two properties in 1998 (the "1998 Sold Properties"), increased
real estate depreciation, increased goodwill amortization and increased interest
expense associated with indebtedness which was assumed or incurred in connection
with the acquisitions described above. These factors are discussed in more
detail in the following paragraphs.
Rental Property Operations
Rental and other property revenues from the Owned Properties totaled $265.7
million for the nine months ended September 30, 1998, compared to $127.1 million
for the nine months ended September 30, 1997, an increase of $138.6 million, or
109%. Rental and other property revenues consisted of the following (dollars in
thousands):
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
SEPT. 30, 1998 SEPT. 30, 1997
----------------- -----------------
<S> <C> <C>
"Same store" properties............................ $105,076 $100,670
1997 Acquisitions.................................. 101,034 15,299
1998 Acquisitions.................................. 53,314 --
1997 Sold Properties............................... -- 2,491
1998 Sold Properties............................... 952 2,497
Properties in lease-up after the completion of an
expansion or renovation.......................... 5,324 6,126
-------- --------
Total.................................... $265,700 $127,083
======== ========
</TABLE>
Property operating expenses, consisting of on-site payroll costs, utilities
(net of reimbursements received from tenants), contract services, turnover
costs, repairs and maintenance, advertising and marketing, property taxes and
insurance, totaled $101.6 million for the nine months ended September 30, 1998,
compared to
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<PAGE> 425
$50.7 million for the nine months ended September 30, 1997, an increase of $50.9
million or 100%. Operating expenses consisted of the following (dollars in
thousands):
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
SEPT. 30, 1998 SEPT. 30, 1997
----------------- -----------------
<S> <C> <C>
"Same store" properties............................ $ 43,359 $44,887
1997 Acquisitions.................................. 39,420 1,486
1998 Acquisitions.................................. 16,381 --
1997 Sold Properties............................... -- 1,154
1998 Sold Properties............................... 500 1,101
Properties in lease-up after the completion of an
expansion or renovation.......................... 1,940 2,109
-------- -------
Total.................................... $101,600 $50,737
======== =======
</TABLE>
Owned property management expenses, representing the costs of managing the
Owned Properties, totaled $7.7 million for the nine months ended September 30,
1998, compared to $4.3 million for the nine months ended September 30, 1997, an
increase of $3.4 million, or 79%. The increase resulted from the acquisition of
properties in 1997 and 1998.
Service Company Business
The Company's share of income from the service company business was $5.7
million for the nine months ended September 30, 1998, compared to $3.5 million
for the nine months ended September 30, 1997. The increase in service company
business income of $2.2 million was due to increased management and other fees
from the acquisition of partnership interests and properties, and the
acquisition of a captive insurance subsidiary in connection with the acquisition
of the NHP Real Estate Companies in June 1997.
General and Administrative Expenses
General and administrative expenses increased from $1.4 million for the
nine months ended September 30, 1997 to $7.4 million for the nine months ended
September 30, 1998, a 429% increase. The increase is primarily due to additional
corporate costs and additional employee salaries associated with the purchase of
NHP Real Estate Companies in June 1997 and the merger with Ambassador in May
1998. In addition, due to the growth of the Company, several new departments
have been added including legal, tax and tender coordination, as well as
increased levels of personnel in the accounting and finance departments.
Interest Expense
Interest expense, which includes the amortization of deferred financing
costs, totaled $56.8 million for the nine months ended September 30, 1998,
compared to $33.4 million for the nine months ended September 30, 1997, an
increase of $23.4 million, or 70%. The increase consists of the following
(dollars in thousands):
<TABLE>
<S> <C>
Interest expense on secured short-term and long-term
indebtedness incurred in connection with the 1997
Acquisitions.............................................. $15,951
Interest expense on secured and unsecured short-term and
long-term indebtedness incurred in connection with the
1998 Acquisitions......................................... 7,073
Increase in interest expense on the Company's other
Indebtedness.............................................. 373
-------
Total increase.................................... $23,397
=======
</TABLE>
Interest Income
Interest income totaled $18.2 million for the nine months ended September
30, 1998, compared to $4.5 million for the nine months ended September 30, 1997.
The increase of $13.8 million is primarily due to
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<PAGE> 426
interest earned on loans made by the Company to partnerships in which the
Company acts as the general partner.
Comparison of the Three Months Ended September 30, 1998 to the Three Months
Ended September 30, 1997
The Company recognized net income of $16.6 million for the three months
ended September 30, 1998, compared to $7.0 million for the three months ended
September 30, 1997. The increase in net income of $9.6 million, or 137%, was
primarily the result of the 1997 Acquisitions and the 1998 Acquisitions. The
increase in net income was partially offset by the 1997 Sold Properties and the
1998 Sold Properties, increased real estate depreciation, increased goodwill
amortization and increased interest expense associated with indebtedness which
was assumed or incurred in connection with the acquisitions described above.
These factors are discussed in more detail in the following paragraphs.
Rental Property Operations
Rental and other property revenues from the Owned Properties totaled $104.4
million for the three months ended September 30, 1998, compared to $47.4 million
for the three months ended September 30, 1997, an increase of $57.0 million, or
120%. Rental and other property revenues consisted of the following (dollars in
thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
SEPT. 30, 1998 SEPT. 30, 1997
------------------ ------------------
<S> <C> <C>
"Same store" properties......................... $ 35,302 $33,998
1997 Acquisitions............................... 33,341 9,292
1998 Acquisitions............................... 33,773 --
1997 Sold Properties............................ -- 1,291
1998 Sold Properties............................ 202 839
Properties in lease-up after the completion of
an expansion or renovation.................... 1,818 1,944
-------- -------
Total................................. $104,436 $47,364
======== =======
</TABLE>
Property operating expenses, consisting of on-site payroll costs, utilities
(net of reimbursements received from tenants), contract services, turnover
costs, repairs and maintenance, advertising and marketing, property taxes and
insurance, totaled $42.0 million for the three months ended September 30, 1998,
compared to $19.5 million for the three months ended September 30, 1997, an
increase of $22.5 million or 115%. Operating expenses consisted of the following
(dollars in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
SEPT. 30, 1998 SEPT. 30, 1997
------------------ ------------------
<S> <C> <C>
"Same store" properties......................... $15,305 $15,824
1997 Acquisitions............................... 13,979 2,043
1998 Acquisitions............................... 11,842 --
1997 Sold Properties............................ -- 602
1998 Sold Properties............................ 126 401
Properties in lease-up after the completion of
an expansion or renovation.................... 705 707
------- -------
Total................................. $41,957 $19,577
======= =======
</TABLE>
Owned property management expenses, representing the costs of managing the
Owned Properties, totaled $3.0 million for the three months ended September 30,
1998, compared to $1.6 million for the three months ended September 30, 1997, an
increase of $1.4 million, or 88%. The increase resulted from the acquisition of
properties in 1997 and 1998.
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<PAGE> 427
Service Company Business
The Company's share of income from the service company business was $1.8
million for the three months ended September 30, 1998, compared to $1.0 million
for the three months ended September 30, 1997. The increase in service company
business income of $0.8 million was due to increased management and other
expenses from the acquisition of partnership interests, and properties, and the
acquisition of a captive insurance subsidiary in connection with the acquisition
of the NHP Real Estate Companies in June 1997.
General and Administrative Expenses
General and administrative expenses increased from $0.6 million for the
three months ended September 30, 1997 to $3.3 million for the three months ended
September 30, 1998, a 450% increase. The increase is primarily due to additional
corporate costs and additional employee salaries associated with the purchase of
NHP Real Estate Companies in June 1997 and the merger with Ambassador in May
1998. In addition, due to the growth of the Company, several new departments
have been added including legal, tax and tender coordination, as well as
increased levels of personnel in the accounting and finance departments.
Interest Expense
Interest expense, which includes the amortization of deferred financing
costs, totaled $22.0 million for the three months ended September 30, 1998,
compared to $12.8 million for the three months ended September 30, 1997, an
increase of $9.2 million, or 72%. The increase consists of the following
(dollars in thousands):
<TABLE>
<S> <C>
Interest expense on secured short-term and long-term
indebtedness incurred in connection with the 1997
Acquisitions.............................................. $5,352
Interest expense on secured and unsecured short-term and
long-term indebtedness incurred in connection with the
1998 Acquisitions......................................... 3,593
Increase in interest expense on the Company's other
Indebtedness.............................................. 278
------
Total increase.................................... $9,223
======
</TABLE>
Interest Income
Interest income totaled $6.9 million for the three months ended September
30, 1998, compared to $3.1 million for the three months ended September 30,
1997. The increase of $3.8 million is primarily due to interest earned on loans
made by the Company to partnerships in which the Company acts as the general
partner.
LIQUIDITY AND CAPITAL RESOURCES
The Company expects to meet its short-term liquidity requirements,
including property acquisitions, tender offers, refinancing of short-term debt,
funds needed to purchase shares of Insignia under the Call Agreements, the
merger with IPT and funds needed for the Special Dividend, with long-term, fixed
rate, fully amortizing debt, secured or unsecured short-term indebtedness
(including indebtedness under the BOA Credit Facility, the WMF Credit Facility
and the Interim Term Loan Agreement), the issuance of debt securities, OP Units
or equity securities in public offerings or private placements, and cash
generated from operations. In April 1997, AIMCO filed a shelf registration
statement with the SEC that registered $1.0 billion of securities for sale on a
delayed or continuous basis. The shelf registration statement was declared
effective in May 1997. As of September 30, 1998, the Company had issued common
and preferred stock thereunder and received gross proceeds of approximately
$731.8 million.
At September 30, 1998, the Company had $43.7 million in cash and cash
equivalents. In addition, the Company had $83.2 million of restricted cash
primarily consisting of reserves and impounds held by lenders for capital
expenditures, property taxes and insurance. The Company's principal demands for
liquidity include normal operating activities, payments of principal and
interest on outstanding debt, capital improvements, acquisitions of or
investments in properties, and distributions paid to the partners. The Company
considers its cash provided by operating activities, and funds available under
its credit facilities, to be adequate to meet
78
<PAGE> 428
short-term liquidity demands. The Company utilizes its revolving credit
facilities for general corporate purposes and to fund investments on an interim
basis.
On October 1, 1998, the Company amended and restated its credit agreement
with Bank of America National Trust and Savings Association ("Bank of America")
and BankBoston, N.A. The credit agreement now provides a revolving credit
facility of up to $100 million, including a swing line of up to $30 million (the
"BOA Credit Facility"). The Company had outstanding borrowings under the BOA
Credit Facility of $50.8 million as of September 30, 1998 (See Note 9).
In February 1998, the AIMCO Operating Partnership, as borrower, and AIMCO
and certain single asset wholly owned subsidiaries of the AIMCO Operating
Partnership (the "Owners"), as guarantors, entered into a five-year, $50 million
secured revolving credit facility agreement (the "WMF Credit Facility") with
Washington Mortgage Financial Group, Ltd. ("Washington Mortgage"), which
provides for the conversion of all or a portion of such revolving credit
facility to a term facility. The Company had outstanding borrowings under the
WMF Credit Facility of $50.0 million as of September 30, 1998.
In October 1998, the AIMCO Operating Partnership and AIMCO entered into a
$300 million Interim Term Loan Agreement with an affiliate of Lehman Brothers,
Inc. The term loan matures in one year and bears interest at a rate per annum
equal to the greatest of (a) the Prime Rate in effect on such day, (b) the Base
CD Rate in effect on such day plus 1% and (c) the Federal Funds Effective Rate
in effect on such day plus 1/2 of 1%. The Company is subject to certain
customary restrictions, including compliance with financial and other covenants
thereunder. The Company used the proceeds to refinance existing outstanding
indebtedness of Insignia at the time of the merger.
From time to time, the Company has offered to acquire and, in the future,
may offer to acquire the interests held by third party investors in certain
limited partnerships for which the Company acts as general partner. Any such
acquisitions will require funds to pay the purchase price for such interests.
Cash payments made in connection with such acquisitions totaled $27.0 million
for the nine months ended September 30, 1998.
In November 1998, the Company issued 1,000,000 shares of Class J Preferred
Stock in a private placement for $100.0 million. AIMCO contributed the proceeds
to the Partnership in exchange for 1,000,000 Class J Preferred Units. In
addition, the Partnership purchased 250,000 shares of Class J Preferred Stock
from AIMCO in exchange for a note payable of $25 million and issued an
additional 250,000 Class J Preferred Units to AIMCO. The holders of Class J
Preferred Stock shall be entitled to receive, when and as declared by the AIMCO
board of directors, dividends equal to (i) 7% per annum of the per share
Liquidation Preference for the period beginning on and including the Issue Date
and lasting until November 15, 1998; (ii) 8% per annum of the per share
Liquidation Preference for the period beginning on and including November 15,
1998 and lasting until November 15, 1999; (iii) 9% per annum of the per share
Liquidation Preference for the period beginning on and including November 15,
1999 and lasting until November 15, 2000; (iv) 9.5% per annum of the per share
Liquidation Preference thereafter. Such dividends shall be cumulative from the
Issue Date, whether or not in any Dividend Period or Periods such dividend shall
be declared or there shall be funds of the Company legally available for the
payment of such dividends. AIMCO may convert any or all of the Class J Preferred
Stock into Class A Common Stock at a conversion price of $40 (equivalent to a
conversion rate of 2.5 shares of Class A Common Stock for each share of Class J
Preferred Stock) (a) after November 6, 2002, if the market price of the Class A
Common Stock in the five most recent Trading Days is equal to or greater than
$40 or; (b) at any time on or prior to November 6, 2002, if the Internal Rate of
Return exceeds 12.5%.
CAPITAL EXPENDITURES
The Company expects to incur initial capital expenditures (spending to
increase a property's revenue potential including renovations, developments and
expansions) of approximately $71.4 million during the year ended December 31,
1998 on all Owned and Equity Properties. For the nine months ended September 30,
1998, the Company has spent $33.0 million for capital replacements and initial
capital expenditures. The Company reserves $300 per apartment unit per annum for
capital replacements, which totaled $10.9 million
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<PAGE> 429
for the nine months ended September 30, 1998. Initial capital expenditures and
capital enhancements will be funded with cash from operating activities and
borrowings under the Company's revolving credit facilities.
FUNDS FROM OPERATIONS
The Company measures its economic profitability based on Funds From
Operations ("FFO"). The Company's management believes that FFO provides
investors with an understanding of the Company's ability to incur and service
debt and make capital expenditures. The Board of Governors of the National
Association of Real Estate Investment Trusts ("NAREIT") defines FFO as net
income (loss), computed in accordance with generally accepted accounting
principles ("GAAP"), excluding gains and losses from debt restructuring and
sales of property, plus real estate related depreciation and amortization
(excluding amortization of financing costs), and after adjustments for
unconsolidated partnerships and joint ventures. The Company calculates FFO in a
manner based upon the NAREIT definition, as adjusted for the amortization of
management company goodwill, the non-cash, deferred portion of the income tax
provision for unconsolidated subsidiaries and less the payment of distributions
on Preferred Units. FFO should not be considered as an alternative to net income
or net cash flows from operating activities, as calculated in accordance with
GAAP, as an indication of the Company's performance or as a measure of
liquidity. FFO is not necessarily indicative of cash available to fund future
cash needs. In addition, there can be no assurance that the Company's basis for
computing FFO is comparable with that of other real estate investment trusts.
For the three and nine months ended September 30, 1998 and 1997, the
Company's FFO was as follows (dollars in thousands):
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
SEPT. 30, 1998 SEPT. 30, 1997 SEPT. 30, 1998 SEPT. 30, 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income........................ $17,745 $ 7,963 $ 56,269 $19,427
Extraordinary item -- early
extinguishment of Debt.......... -- -- -- 269
(Gain) losses on disposition of
properties...................... (257) 169 (2,783) 169
Real estate depreciation, net of
minority Interest in other
partnerships.................... 24,477 7,802 56,900 21,052
Amortization of goodwill.......... 2,350 237 7,077 711
Equity in earnings of other
partnerships:
Real estate depreciation........ 8,248 2,084 17,379 2,781
Equity in earnings of
unconsolidated Subsidiaries:
Real estate depreciation........ -- 1,426 -- 2,689
Deferred taxes.................. 1,843 1,290 6,134 2,164
Amortization of recoverable amount
of Management contracts and
goodwill........................ 1,113 280 4,201 430
Preferred Unit distributions...... (6,285) -- (12,296) --
Funds From Operations (FFO)....... $49,234 $21,251 $132,881 $49,692
======= ======= ======== =======
Weighted average number of OP
Units, OP Unit Equivalents, and
Preferred Units convertible to
OP Units........................ 55,986 29,679 53,007 24,347
======= ======= ======== =======
</TABLE>
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<PAGE> 430
For the nine months ended September 30, 1998 and 1997, net cash flows were
as follows (dollars in thousands):
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Cash flow provided by operating activities................ $ 50,825 $ 53,435
Cash flow used in investing activities.................... (185,453) (314,814)
Cash flow provided by financing activities................ 141,221 293,984
========= =========
</TABLE>
CONTINGENCIES
HUD Approvals and Enforcement
A significant number of affordable units included in the AIMCO Properties
are subject to regulation by the U.S. Department of Housing and Urban
Development ("HUD"). Under its regulations, HUD reserves the right approve the
owner and the manager of HUD-insured and HUD-assisted properties, as well as
their "principals" (e.g., general partners, stockholders with a 10% or greater
interest, officers and directors) in connection with the acquisition of a
property or the award of a management contract. This approval process is
commonly referred to as "2530 Clearance." HUD monitors the performance of
properties with HUD-insured mortgage loans. HUD also monitors compliance with
applicable regulations, and takes performance and compliance into account in
approving the acquisition and management of additional HUD-assisted properties.
In the event of instances of unsatisfactory performance or regulatory
violations, the HUD office with jurisdiction over the applicable property has
the authority to enter a "flag" into the computerized 2530 clearance system. If
one or more flags have been entered, a decision whether to grant 2530 clearance
is then subject to review by HUD's Multifamily Participation Review Committee in
Washington, D.C. (the "2530 Committee"). As a result of certain mortgage
defaults and unsatisfactory ratings received by NHP Incorporated (a company
acquired by AIMCO in December 1997) ("NHP") in years prior, HUD believes that
the 2530 Committee must review any application for 2530 clearance filed by the
Company. As of September 30, 1998, one flag was in the 2530 system with respect
to the Company in connection with a subpoena received by NHP in October 1997
from the Inspector General of HUD.
The Inspector General's subpoena requested documents relating to any
arrangement whereby NHP or any of its affiliates provides or has provided
compensation to owners of HUD multifamily projects in exchange for or in
connection with property management of a HUD project. The Company believes that
other owners and managers of HUD projects have received similar subpoenas.
Documents relating to certain of the Company's acquisitions of property
management rights for HUD projects, may be responsive to the subpoena. The
Company is in the process of complying with the subpoena and has provided
certain documents to the Inspector General, without conceding that they are
responsive to the subpoena. The Company believes that its operations are in
compliance, in all material respects, with all laws, rules and regulations
relating to HUD-assisted or HUD-insured properties. Effective February 13, 1998,
counsel for the Company and the U.S. Attorney for the Northern District of
California entered into a tolling agreement related to certain civil claims the
government may have against the Company. Although no action has been initiated
against the Company or, to the Company's knowledge, any owner of a HUD property
managed by the Company, if any such action is taken in the future, it could
ultimately affect existing arrangements with respect to HUD projects or
otherwise have a material adverse effect on the Company's results of operations.
HUD also has the authority to suspend or deny property owners and managers
from participation in HUD programs with respect to additional assistance within
a geographic region through imposition of a Limited Denial of Participation
("LDP") by any HUD office or nationwide for violations of HUD regulatory
requirements. In June 1997, the St. Louis HUD field office issued an LDP to NHP
as a result of a physical inspection and mortgage default at one property owned
and managed by NHP-related companies. Although the LDP expired by its terms in
June 1998, the Company entered into a settlement agreement with HUD which
includes aggregate payments to HUD of approximately $533,000 and resolution of
all issues involving four properties in the St. Louis metropolitan area. Because
an LDP is prospective, existing HUD agreements were not, and are not, affected.
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<PAGE> 431
The Company believes that the national office will continue to apply the
clearance process to large management portfolios such as the Company's with
discretion and flexibility. While there can be no assurance, the Company
believes that the unsatisfactory reviews and the mortgage defaults will not have
a material impact on its results of operations or financial condition. However,
on September 29, 1998, the 2530 Committee deferred action on three of the
Company's 2530 applications for up to 120 days pending receipt of further
information regarding the HUD Inspector General's inquiry with AIMCO regarding
past practices of NHP. If HUD were to disapprove the Company as property manager
for one or more affordable properties, the Company's ability to obtain property
management revenues from new affordable properties may be impaired.
Possible Environmental Liabilities
Under Federal, state and local environmental laws and regulations, a
current or previous owner or operator of real property may be required to
investigate and clean up a release of hazardous substances at such property, and
may, under such laws and common law, be held liable for property damage and
other costs incurred by third parties in connection with such releases. The
liability under certain of these laws has been interpreted to be joint and
several unless the harm is divisible or there is a reasonable basis for
allocation of responsibility. The failure to remediate the property properly may
also adversely affect the owner's ability to sell or rent the property or to
borrow using the property as collateral. In connection with its ownership,
operation or management of the AIMCO Properties, the Company could be
potentially liable for environmental liabilities or costs associated with its
properties or properties it may in the future acquire or manage.
Certain Federal, state and local laws and regulations govern the removal,
encapsulation or disturbance of asbestos-containing materials ("ACMs") when
those materials are in poor condition or in the event of building remodeling,
renovation or demolition; impose certain worker protection and notification
requirements and govern emissions of and exposure to asbestos fibers in the air.
These laws also impose liability for a release of ACMs and may enable third
parties to seek recovery from owners or operators of real properties for
personal injury associated with ACMs. In connection with the ownership,
operation or management of properties, the Company could be potentially liable
for those costs. There are ACMs at certain of the Owned Properties, and there
may be ACMs at certain of the other AIMCO Properties. The Company has developed
and implemented operations and maintenance programs, as appropriate, that
establish operating procedures with respect to the ACMs at most of the Owned
Properties, and intends to develop and implement, as appropriate, such programs
at AIMCO Properties that do not have such programs.
Certain of the Company's Owned Properties, and some of the other AIMCO
Properties, are located on or near properties that contain or have contained
underground storage tanks or on which activities have occurred which could have
released hazardous substances into the soil or groundwater. There can be no
assurances that such hazardous substances have not been released or have not
migrated, or in the future will not be released or will not migrate, onto the
AIMCO Properties.
All of the Owned Properties were subject to Phase I or similar
environmental audits by independent environmental consultants prior to
acquisition. The audits did not reveal, nor is the Company aware of, any
environmental liability relating to such properties that would have a material
adverse effect on the Company's business, assets or results of operations.
However, such audits involve a number of judgments and it is possible that such
audits did not reveal all environmental liabilities or that there are material
environmental liabilities of which the Company is unaware. In addition, the
Managed Properties may not have been subject to Phase I or similar environmental
audits by independent environmental consultants. While the Company is not aware
of any environmental liability that it believes would have a material adverse
effect on its business, financial condition or results of operations relating to
the Managed Properties, for which audits are not available, there can be no
assurance that material environmental liabilities of which the Company is
unaware do not exist at such properties.
In October 1997, NHP received a letter ("the EPA Letter") from the U.S.
Department of Justice ("DOJ") which stated that the U.S. Environmental
Protections Agency ("EPA") has requested that the DOJ file a lawsuit against NHP
alleging, among other things, that NHP violated the Clean Air Act, the National
Recycling and Emissions Reduction Programs and associated regulations in
connection with the
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<PAGE> 432
employment of certain unlicensed personnel, maintenance and disposal of certain
refrigerants, and record-keeping practices at two properties. A settlement in
principle between NHP and the EPA has been reached whereby NHP agreed to pay a
fine of less than $100,000, permit the EPA to audit the maintenance records and
technical staffing at 40 NHP properties and continue to provide training to all
maintenance workers with respect to the disposal of refrigerants. A formal
settlement agreement is expected to be executed in December 1998. It is possible
that the future EPA audits agreed to in the settlement could result in
additional allegations by EPA of violations at the properties audited. However,
based on the terms of the settlement in principle with the EPA, the Company
anticipates that the fines, if any, resulting from any such violations will be
nominal.
Uncertainties Regarding Status of Federal Subsidies
The Company owns and/or manages approximately 52,000 units that are
subsidized under Section 8 of the United States Housing Act of 1937, as amended
("Section 8"). These subsidies are generally provided pursuant to project-based
Housing Assistance Payment Contracts ("HAP Contracts") between HUD and the
owners of the properties or, with respect to a limited number of units managed
by the Company, pursuant to vouchers received by tenants. On October 27, 1997,
the President of the United States signed into law the Multifamily Assisted
Housing Reform and Affordability Act of 1997 (the "1997 Housing Act"). Under the
1997 Housing Act, the mortgage financing and HAP Contracts of certain properties
assisted under Section 8, with rents above market levels and financed with
HUD-insured mortgage loans, will be restructured by reducing subsidized rents to
market levels, thereby reducing subsidy levels, and lowering required debt
service payments as needed to ensure financial viability at the reduced rents
and subsidy levels. The 1997 Housing Act retains project-based subsidies for
most properties (properties in rental markets with limited supply, properties
serving the elderly and certain other properties).
The 1997 Housing Act phases out project-based subsidies on selected
properties serving families not located in the rental markets with limited
supply, converting each such subsidy to a tenant-based subsidy. Under a tenant
based system, rent vouchers would be issued to qualified tenants who then could
elect to reside at a property of their choice, provided the tenant has the
financial ability to pay the difference between the selected property's monthly
rent and the value of the voucher, which would be established based on HUD's
regulated fair market rent for the relevant geographical areas. The 1997 Housing
Act provides that properties will begin the restructuring process in Federal
fiscal year 1999 (beginning October 1, 1998), and that HUD will issue final
regulations implementing the 1997 Housing Act on or before October 27, 1998.
Congress has elected to renew HAP Contracts expiring before October 1, 1998 for
one-year terms, generally at existing rents, so long as the properties remain in
compliance with the HAP Contracts. While the Company does not expect the
provisions of the 1997 Housing Act to result in a significant number of tenants
relocating from properties managed by the Company, there can be no assurance
that the provisions will not significantly affect the Company's management
portfolio. Furthermore, there can be no assurance that other changes in Federal
housing subsidy will not occur. Any such changes could have an adverse effect on
the Company's property management revenues.
HIGH PERFORMANCE UNITS
In January 1998, the AIMCO Operating Partnership agreed to sell 15,000
Class I High Performance Partnership Units (the "High Performance Units") to a
partnership owned by fourteen members of AIMCO's senior management, and to three
of its independent directors for $2.1 million in cash. The High Performance
Units have nominal value unless the total return of AIMCO's Class A Common Stock
(defined as dividend income plus share price appreciation), over the three year
period ending December 31, 2000, is at least 30% and exceeds the industry
average, as determined by a peer group index, by at least 15% (the "Total
Return"). At the conclusion of the three year period, if the Total Return of
AIMCO's Class A Common Stock satisfies these criteria, the holders of the High
Performance Units will receive distributions and allocations of income and loss
from the AIMCO Operating Partnership in the same amounts and at the same times
as would holders of a number of OP Units equal to the quotient obtained by
dividing (i) the product of (a) 15% of the amount by which the Total Return of
AIMCO's Class A Common Stock over the three year period exceeds the
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greater of 115% of a peer group index or 30% (such excess being the "Excess
Return"), multiplied by (b) the weighted average market value of the AIMCO
Operating Partnership's outstanding OP Units, by (ii) the market value of one
share of Class A Common Stock at the end of the three year period. The
three-year measurement period will be shortened in the event of a change of
control of the Company. Unlike OP Units, the High Performance Units are not
redeemable or convertible into Class A Common Stock unless a change of control
of the Company occurs. Because there is substantial uncertainty that the High
Performance Units will have more than nominal value due to the required Total
Return over the three-year term, the AIMCO Operating Partnership has not
recorded any value to the High Performance Units. If the measurement period had
ended September 30, 1998, the Excess Return would have been $16.5 million and
the value of the High Performance Units would have been $2.5 million, and such
High Performance Units would have had no dilutive effect on net income per unit.
YEAR 2000 READINESS DISCLOSURE
General Description of the Year 2000 Issue and the Nature and Effects of the
Year 2000 on Information Technology (IT) and Non-It Systems
The Year 2000 Issue is the result of computer programs being written using
two digits rather than four digits to define the applicable year. Any of the
Company's computer programs or hardware that have date-sensitive software or
embedded chips may recognize a date using "00" as the year 1900 rather than the
year 2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, send invoices, or engage in similar normal business
activities.
Over the past twenty months, the Company has determined that it will be
required to modify or replace significant portions of its software and certain
hardware so that those systems will properly utilize dates beyond December 31,
1999. The Company presently believes that with modifications or replacements of
existing software and certain hardware, the Year 2000 Issue can be mitigated.
However, if such modifications and replacements are not made, or are not
completed timely, the Year 2000 Issue could have a material impact on the
operations of the Company.
The Company's plan to resolve the Year 2000 Issue involves the following
four phases: assessment, remediation, testing, and implementation. To date, the
Company has fully completed its assessment of all information systems that could
be significantly affected by the Year 2000, and has begun the remediation,
testing and implementation phases on both hardware and software systems.
Assessments are continuing in regards to embedded systems. The status of each is
detailed below.
COMPUTER HARDWARE
During 1997, the Company identified all of the computer systems at risk and
formulated a plan to repair or replace each of the affected systems. The Company
has replaced its mainframe system, including the creation of new applications,
at a total cost of approximately $1.1 million. In August 1998, the Year-2000
compliant system became fully functional. In addition to the mainframe, PC-based
network servers and routers and desktop PCs were analyzed for compliance. The
Company has begun to replace each of the non-compliant network connections and
desktop PCs and, as of September 30, 1998, is approximately 85% complete with
this effort. The total cost to replace the PC-based network servers and routers
and desktop PCs is expected to be approximately $1.2 million, of which $886,000
has been incurred to date. The remaining network connections and desktop PCs are
expected to be upgraded to Year-2000 compliant systems by March 31, 1999.
COMPUTER SOFTWARE
As for software, the Company utilizes a combination of off-the-shelf
commercially available software programs as well as custom-written programs that
are designed to fit specific needs. Both of these types of programs were studied
and implementation plans written and executed with the intent of repairing or
replacing any non-compliant software programs.
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<PAGE> 434
In 1997, when the Company merged with NHP Incorporated, the core financial
system used by NHP was Year-2000 compliant. During 1998, the Company integrated
all of its core financial systems to this compliant system for general ledger
and financial reporting purposes. In 1997, the Company determined that the
software used for property management and rent collection was not Year-2000
compliant. During 1998, the Company has implemented a Year-2000 compliant system
at each of its property sites, including owned and managed, at a cost of
$700,000. Since then, the Company has acquired 75 properties and has also merged
with Insignia. Insignia owned or managed 140 properties. As properties are
acquired, the Company converts the existing property management and rent
collection systems to the Company's Year-2000 compliant systems. The estimated
additional costs to convert such systems at all recently acquired properties,
including those acquired in the merger with Insignia, is $200,000, and the
implementation and testing process is expected to be completed by March 31,
1999.
The final software area is the office software and server operating
systems. The Company has upgraded all non-compliant office software systems on
each PC and has upgraded 93% of the server operating systems. The remaining
server operating systems are planned to be upgraded to be Year-2000 compliant by
December 1998.
OPERATING EQUIPMENT
The Company has operating equipment, primarily at the property sites, which
needed to be evaluated for Year-2000 compliance. In September 1997, the Company
began taking a census and inventorying embedded systems issues. At that time,
management chose to focus its attention mainly upon security systems, elevators,
heating-ventilation-air-conditioning systems (HVAC), telephone systems and
switches, and sprinkler systems. While this area is the most difficult to fully
research adequately, management has not yet found any major non-compliance
issues that put the Company at risk financially or operationally. We intend to
have a third-party conduct an audit of these systems and report their findings
by December 1998.
Any of the above operating equipment that has been found to be
non-compliant to date has been replaced or repaired. To date, these have
consisted only of security systems and phone systems. As of September 30, 1998,
we have evaluated approximately 86% of the operating equipment for Year-2000
compliance. The total cost incurred as of September 30, 1998 to replace or
repair the operating equipment was approximately $70,000. We estimate the cost
to replace or repair any remaining operating equipment is approximately
$325,000, and we expect to be completed by April 30th, 1999. We continue to have
"awareness campaigns" throughout the organization designed to raise awareness
and report any possible compliance issues regarding operating equipment within
our enterprise.
Nature and Level of Importance of Third Parties and Their Exposure to the Year
2000
The Company is currently actively conducting surveys of its banking and
vendor relationships to assess risks regarding their Year-2000 readiness. The
Company has banking relationships with three major financial institutions, all
of which have indicated their compliance efforts will be complete before May
1999. The Company has updated data transmission standards with two of the three
financial institutions. The Company's contingency plan in this regard is to move
accounts from any institution that cannot be certified 2000 compliant by June 1,
1999.
The Company does not rely heavily on any single vendor for goods and
services and does not have significant suppliers and subcontractors who share
information systems with the Company (external agents). To date, the Company is
not aware of any external agent with a Year 2000 issue that would materially
impact the Company's results of operations, liquidity, or capital resources.
However, the Company has no means of ensuring that external agents will be Year
2000 ready. Management does not believe that the inability of external agents to
complete their Year 2000 resolution process in a timely manner will have a
material impact on the financial position or results of operations of the
Company. However, the effect of non-compliance by external agents is not readily
determinable.
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Costs to Address Year 2000
The total cost of the Year 2000 project is estimated at $3.4 million and is
being funded through operating cash flows. To date, the Company has incurred
approximately $2.7 million ($0.5 million expensed and $2.2 million capitalized
for new systems and equipment), related to all phases of the Year 2000 project.
Of the total remaining project costs, approximately $0.4 million is attributable
to the purchase of new software and operating equipment, which will be
capitalized. The remaining $0.3 million relates to repair of hardware and
software and will be expensed as incurred.
Risks Associated with the Year 2000
Management believes it has an effective program in place to resolve the
Year 2000 issue in a timely manner. As noted above, the Company has not yet
completed all necessary phases of the Year 2000 program. In the event that the
Company does not complete any additional phases, certain worst case scenarios
could occur. The worst case scenarios include elevators, security and HVAC
systems that read incorrect dates and operate with incorrect schedules (e.g.,
elevators will operate on Monday as if it were Sunday). Although such a change
is annoying to residents, it is not business critical. In addition, disruptions
in the economy generally resulting from Year 2000 issues could also materially
adversely affect the Company. The Company could be subject to litigation for
computer systems failure, for example, equipment shutdown or failure to properly
date business records. The amount of potential liability and lost revenue cannot
be reasonably estimated at this time.
Contingency Plans Associated with the Year 2000
The Company has contingency plans for certain critical applications and is
working on such plans for others. These contingency plans involve, among other
actions, manual workarounds and selecting new relationships for such activities
as banking relationships and elevator operating systems.
Inflation
Substantially all of the leases at the Company's apartment properties are
for a period of six months or less, allowing, at the time of renewal, for
adjustments in the rental rate and the opportunity to re-lease the apartment
unit at the prevailing market rate. The short-term nature of these leases
generally serves to minimize the risk to the Company of the adverse effect of
inflation and the Company does not believe that inflation has had a material
adverse impact on its revenues.
Litigation
In connection with the Company's offers to purchase interests in limited
partnerships that own properties, the Company and its affiliates are sometimes
subject to legal actions, including allegations that such activities may involve
breaches of fiduciary duties to the limited partners of such partnerships or
violations of the relevant partnership agreements. The Company believes it
complies with its fiduciary obligations and relevant partnership agreements, and
does not expect such legal actions to have a material adverse effect on the
consolidated financial condition or results of operations of the Company and its
subsidiaries taken as a whole. The Company may incur costs in connection with
the defense or settlement of such litigation, which could adversely affect the
Company's desire or ability to complete certain transactions and thereby have a
material adverse effect on the Company and its subsidiaries.
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Comparison of the year ended December 31, 1997 to the year ended December 31,
1996
Net Income
The Company recognized net income of $32.7 million and net income
attributable to holders of OP Units of $30.4 million for the year ended December
31, 1997 compared to net income of $15.7 million, all attributable to holders of
OP Units, for the year ended December 31, 1996. Net income attributable to
holders of OP Units represents net income less a provision for accrued dividends
on the AIMCO Operating Partnership's Class B Partnership Preferred Units and
Class C Partnership Preferred Units, which were issued in August and December
1997, respectively. There were no Preferred Units outstanding during 1996. The
increase in net income allocable to holders of OP Units of $14.7 million, or
93.6%, was primarily the result of the following:
- the acquisition of 10,484 units in 42 apartment communities primarily
during November and December 1996 (the "1996 Acquisitions");
- the acquisition of 11,706 units in 44 apartment communities during 1997;
- the acquisition of interests in the NHP Partnerships during the period
June through December 1997;
- the acquisition of NHP in December 1997; and
- interest income on general partner loans to unconsolidated real estate
partnerships.
The effect of these acquisitions on net income was partially offset by the
sale of four properties in August 1996 (the "1996 Dispositions") and five
properties in October 1997. These factors are discussed in more detail in the
following paragraphs.
Rental Property Operations
Rental and other property revenues from the Company's Owned Properties
totaled $193.0 million for the year ended December 31, 1997, compared to $100.5
million for the year ended December 31, 1996, an increase of $92.5 million, or
92.0%. Rental and other property revenues consisted of the following (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
----------------- -----------------
<S> <C> <C>
"Same store" properties............................. $ 78,724 $ 75,069
1996 Acquisitions................................... 68,505 14,970
1997 Acquisitions................................... 22,163 --
Acquisition of interests in the NHP Partnerships.... 15,592 --
1996 Dispositions................................... -- 3,363
1997 Dispositions................................... 4,092 4,719
Properties in lease-up after the completion of an
expansion or renovation........................... 3,930 2,395
-------- --------
Total..................................... $193,006 $100,516
======== ========
</TABLE>
Average monthly rent per occupied unit for the same store properties
increased to $571 at December 31, 1997 from $560 at December 31, 1996, an
increase of 2.0%. Weighted average physical occupancy for the properties
increased to 94.8% at December 31, 1997 from 94.5% at December 31, 1996, an
increase of 0.3%.
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Property operating expenses consist of on-site payroll costs, utilities
(net of reimbursements received from tenants), contract services, turnover
costs, repairs and maintenance, advertising and marketing, property taxes and
insurance. Property operating expenses totaled $76.2 million for the year ended
December 31, 1997, compared to $38.4 million for the year ended December 31,
1996, an increase of $37.8 million, or 98.4%. Property operating expenses
consisted of the following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
----------------- -----------------
<S> <C> <C>
"Same store" properties............................. $28,009 $28,234
1996 Acquisitions................................... 28,911 5,258
1997 Acquisitions................................... 8,402 --
Acquisition of interests in the NHP Partnerships.... 7,304 --
1996 Dispositions................................... -- 1,793
1997 Dispositions................................... 1,972 2,300
Properties in lease-up after the completion of an
expansion or renovation........................... 1,570 815
------- -------
Total..................................... $76,168 $38,400
======= =======
</TABLE>
Owned Property management expenses, representing the costs of managing the
Owned Properties, totaled $6.6 million for the year ended December 31, 1997,
compared to $2.7 million for the year ended December 31, 1996, an increase of
$3.9 million, or 144.4%. The increase resulted from the acquisition of
properties in 1996 and 1997 and the acquisition of interests in the NHP
Partnerships.
Service Company Business
The Company's share of income from the service company business was $2.0
million for the year ended December 31, 1997, compared to $1.7 million for the
year ended December 31, 1996, an increase of $0.3 million or 17.6%. The increase
is due to the acquisition by the Company of property management businesses in
August and November 1996, the acquisition of partnership interests which provide
for certain partnership and administrative fees, and a captive insurance
subsidiary acquired in connection with the acquisition of the NHP Real Estate
Companies in June 1997, which were offset by the expiration of the Company's
commercial asset management contracts on March 31, 1997. The Company's share of
income from service company businesses consisted of the following (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
----------------- -----------------
<S> <C> <C>
Properties managed for third parties and affiliates
Management fees and other income.................. $ 9,353 $ 5,679
Management and other expenses..................... (9,045) (4,405)
------- -------
308 1,274
------- -------
Commercial asset management
Management and other income....................... 245 1,026
Management and other expenses..................... (275) (339)
------- -------
(30) 687
------- -------
Reinsurance operations
Revenues.......................................... 4,228 1,267
Expenses.......................................... (360) (282)
------- -------
3,868 985
------- -------
Brokerage and other
Revenues.......................................... 111 395
Expenses.......................................... (230) (326)
------- -------
(119) 69
------- -------
$ 4,027 $ 3,015
======= =======
</TABLE>
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Income from the management of properties for third parties and affiliates
was $0.3 million for the year ended December 31, 1997, compared to $1.3 million
for the year ended December 31, 1996, a decrease of $1.0 million, or 76.9%.
Losses from commercial asset management were $30,000 for the year ended
December 31, 1997 compared to income of $0.7 million for the year ended December
31, 1996. The decrease is primarily due to the expiration of certain commercial
management contracts in March 1997.
Income from the reinsurance operations for the year ended December 31, 1997
increased by $2.9 million from the year ended December 31, 1996, due to
increased premiums collected from a larger work force, improved loss experience
and the closure of claims for less than the amounts previously reserved, as well
as the acquisition of the NHP Real Estate Companies, which included the
acquisition of a captive insurance company.
General and Administrative Expenses
General and administrative expenses totaled $5.4 million for the year ended
December 31, 1997 compared to $1.5 million for the year ended December 31, 1996,
an increase of $3.9 million, or 260.0%. The increase in general and
administrative expenses is primarily due to the payment of incentive
compensation to members of senior management and other employees.
Interest Expense
Interest expense, which includes the amortization of deferred finance
costs, totaled $51.4 million for the year ended December 31, 1997, compared to
$24.8 million for the year ended December 31, 1996, an increase of $26.6 million
or 107.3%. The increase consists of the following (in thousands):
<TABLE>
<S> <C>
Interest expense on secured short-term and long-term
indebtedness incurred in connection with the 1996
Acquisitions.............................................. $11,054
Interest expense on secured and unsecured short-term and
long-term indebtedness incurred in connection with the
1997 Acquisitions......................................... 7,082
Interest expense on secured and unsecured short-term and
long-term indebtedness incurred in connection with the
acquisition of interests in the NHP Partnerships.......... 6,924
Increase in interest expense on the Credit Facility due to
borrowings used in connection with the refinancing of
short-term indebtedness and the acquisition of the NHP
Real Estate Companies in June 1997, net of decreased
interest expense on existing indebtedness due to principal
amortization.............................................. 1,523
-------
Total increase.................................... $26,583
=======
</TABLE>
Interest income
Interest income totaled $8.7 million for the year ended December 31, 1997,
compared to $0.5 million for the year ended December 31, 1996. The increase is
primarily due to interest earned on general partner loans to unconsolidated real
estate partnerships acquired in 1997.
Comparison of the year ended December 31, 1996 to the year ended December 31,
1995
The Company recognized net income of $15.7 million for the year ended
December 31, 1996, all of which was attributable to holders of OP Units. For the
year ended December 31, 1995, the Company recognized net income of $15.0
million, of which $5.2 million was attributable to the holder of Preferred Units
and $9.8 million was attributable to holders of OP Units. The increase in net
income allocable to the holders of OP Units in 1996 of 60.2% was primarily the
result of the 1996 acquisitions offset by the 1996 dispositions. The increase in
net income is partially offset by increased interest expense associated with
debt which was incurred in June 1995 and September 1995 upon the repurchase of
966,000 Preferred Units and 513,514 OP Units, increased interest expense
attributable to indebtedness assumed or incurred in connection
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with the 1996 acquisitions, offset by decreased interest expense after the pay
down of the Company's credit facility with proceeds from the 1996 dispositions.
These factors are discussed in more detail in the following paragraphs.
Rental Property Operations
Rental and other property revenues from the Owned Properties totaled $100.5
million for the year ended December 31, 1996, compared to $74.9 million for the
year ended December 31, 1995, an increase of $25.6 million, or 34.2%. Rental and
other property revenues consisted of the following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- -----------------
<S> <C> <C>
"Same store" properties............................. $ 69,268 $67,058
1996 Acquisitions................................... 25,929 517
1996 Dispositions................................... 3,363 5,272
Properties in lease-up after the completion of an
expansion or renovation........................... 1,956 2,100
-------- -------
Total..................................... $100,516 $74,947
======== =======
</TABLE>
Average monthly rent per occupied unit for these 42 properties at December
31, 1996 and 1995 was $546 and $531, respectively, an increase of 2.8%. Weighted
average physical occupancy for the 42 properties increased from 94.2% at
December 31, 1995 to 94.9% at December 31, 1996, a 0.7% increase.
Property operating expenses totaled $38.4 million for the year ended
December 31, 1996, compared to $30.2 million for the year ended December 31,
1995, an increase of $8.2 million, or 27.2%. Property operating expenses
consisted of the following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- -----------------
<S> <C> <C>
"Same store" properties............................. $26,103 $25,615
1996 Acquisitions................................... 9,652 218
1996 Dispositions................................... 1,793 3,146
Properties in lease-up after the completion of an
expansion or renovation........................... 852 1,171
------- -------
Total..................................... $38,400 $30,150
======= =======
</TABLE>
Owned property management expenses totaled $2.7 million for the year ended
December 31, 1996, compared to $2.3 million for the year ended December 31,
1995, an increase of $0.4 million or 17.4%. The increase is primarily due to the
acquisition of properties in 1996.
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Service Company Business
The Company's share of income from the service company business was $1.7
million for the year ended December 31, 1996 compared to $2.0 million for the
year ended December 31, 1995. Management fees and other income totaled $8.4
million for the year ended December 31, 1996 compared to $8.1 million for the
year ended December 31, 1995, reflecting an increase of $0.3 million, or 3.7%.
Management and other expenses totaled $5.4 million for the year ended December
31, 1996 compared to $5.0 million for the year ended December 31, 1995,
reflecting an increase of $0.4 million, or 8.0%. Major sources of revenue and
expense before amortization of management company goodwill, corporate overhead
allocations, depreciation and amortization and minority interest are described
below (in thousands).
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- -----------------
<S> <C> <C>
Properties managed for third parties and affiliates
Management fees and other income.................. $ 5,679 $ 4,878
Management and other expenses..................... (4,405) (3,620)
------- -------
1,274 1,258
------- -------
Commercial asset management
Management and other income....................... 1,026 1,564
Management and other expenses..................... (339) (562)
------- -------
687 1,002
------- -------
Reinsurance operations
Revenues.......................................... 1,267 1,193
Expenses.......................................... (282) (432)
------- -------
985 761
------- -------
Brokerage and other
Revenues.......................................... 395 497
Expenses.......................................... (326) (339)
------- -------
69 158
------- -------
$ 3,015 $ 3,179
======= =======
</TABLE>
Income from the management of properties for third parties and affiliates
was $1.3 million for the years ended December 31, 1996 and 1995. Management fee
revenues increased from $4.9 million for the year ended December 31, 1995 to
$5.7 million for the year ended December 31, 1996, an increase of $0.8 million
or 16.4%, primarily as a result of the acquisition of properties in 1996. A
comparable increase in management expenses was also experienced in 1996.
Income from commercial asset management was $0.7 million for the year ended
December 31, 1996 compared to $1.0 million for the year ended December 31, 1995,
a decrease of $0.3 million or 30.0%. Commercial management revenues declined
from $1.6 million in 1995 to $1.0 million in 1996, primarily due to the
reduction in the number of properties managed. Commercial management expenses
declined from $0.6 million to $0.3 million as a result of fewer managed
properties. The asset management contracts expired on March 31, 1997.
Income from the reinsurance operations for the year ended December 31, 1996
increased by $0.2 million, or 29.4%, from the year ended December 31, 1995, due
to increased premiums collected from a larger work force, improved loss
experience and the closure of claims for less than the amounts previously
reserved.
General and Administrative Expenses
General and administrative expenses totaled $1.5 million for the year ended
December 31, 1996 compared to $1.8 million for the year ended December 31, 1995,
a decrease of $0.3 million or 16.7%. The amount presented for 1996 included $1.5
million for payroll, overhead and other costs associated with operating a public
company and $0.6 million for payroll and other costs incurred in the development
of new business offset by a corporate overhead allocation of $0.6 million to the
service company business. The amount
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<PAGE> 441
presented for 1995 included $1.6 million for payroll, overhead and other costs
associated with operating a public company, and $0.8 million for payroll and
other costs incurred in the development of new business offset by a corporate
overhead allocation of $0.6 million to the service company business. The net
decrease in general and administrative expenses for the year ended December 31,
1996 is attributable to fewer personnel and a decrease in state income taxes
paid in 1996 as a result of the restructuring in early 1995.
Interest Expense
Interest expense totaled $24.8 million for the year ended December 31, 1996
compared to $13.3 million for the year ended December 31, 1995, an increase of
$11.5 million or 86.5%. The increase consists primarily of $5.7 million of
interest expense on secured long-term debt incurred in connection with
refinancings completed in June 1995 and September 1995 to refinance certain
secured notes payable, repurchase 966,000 Preferred Units and 513,514 OP Units,
and $5.6 million of interest expense on long-term and short-term indebtedness
incurred or assumed in connection with the 1996 acquisitions. Interest expense
on secured tax-exempt bond financing increased by $1.0 million, or 13.5%, due to
an increase in interest rate on the $48.1 million of tax-exempt bonds refinanced
in June 1996 and the borrowing of $9.9 million in June 1996 (proceeds of which
were used to pay down the Company's credit facility). During the year ended
December 31, 1996, the Company capitalized interest of $0.8 million as a result
of increased construction and renovation activities compared to $0.1 million
which was capitalized during the year ended December 31, 1995. Interest expense,
amortization of deferred financing costs and unused commitment fees on the
Credit Facility were $1.6 million for the years ended December 31, 1996 and
1995.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1998, the Company had $49.3 million in cash and cash
equivalents. In addition, the Company had $75.1 million of restricted cash
primarily consisting of reserves and impounds held by lenders for capital
expenditures, property taxes and insurance. The Company's principal demands for
liquidity include normal operating activities, payments of principal and
interest on outstanding debt, capital improvements, acquisitions of or
investments in properties and distributions paid to limited partners in the
AIMCO Operating Partnership. The Company considers its cash provided by
operating activities, and funds available under its credit facilities, to be
adequate to meet short-term liquidity demands. The Company utilizes its
revolving credit facilities for general corporate purposes and to fund
investments on an interim basis.
On October 1, 1998, the Company amended and restated its credit agreement
with Bank of America National Trust and Savings Association ("Bank of America")
and BankBoston, N.A. The credit agreement now provides a revolving credit
facility of up to $100 million, including a swing line of up to $30 million (the
"BOA Credit Facility"). The AIMCO Operating Partnership is the borrower under
the BOA Credit Facility, and all obligations thereunder are guaranteed by AIMCO
and certain of its subsidiaries. The annual interest rate under the BOA Credit
Facility is based on either LIBOR or a base rate which is the higher of Bank of
America's reference rate or 0.5% over the federal funds rate, plus, in either
case, an applicable margin. The AIMCO Operating Partnership elects which
interest rate will be applicable to particular borrowings under the BOA Credit
Facility. The margin ranges between 1.25% and 2.0% in the case of LIBOR-based
loans and between negative 0.25% and positive 0.5% in the case of base rate
loans, depending upon a ratio of the Company's consolidated unsecured
indebtedness to the value of certain unencumbered assets. The BOA Credit
Facility matures on October 1, 1999 unless extended, at the discretion of the
lenders. The BOA Credit Facility provides for the conversion of the revolving
facility into a three year term loan. The availability of funds to the AIMCO
Operating Partnership under the BOA Credit Facility is subject to certain
borrowing base restrictions and other customary restrictions, including
compliance with financial and other covenants thereunder. The financial
covenants contained in the BOA Credit Facility require the AIMCO Operating
Partnership to maintain a ratio of debt to gross asset value of no more than
0.55 to 1.0, an interest coverage ratio of 2.25 to 1.0 and a fixed charge
coverage ratio of at least 1.6 to 1.0 through December 31, 1998, 1.7 to 1.0 from
January 1, 1999 through June 30, 1999, and 1.8 to 1.0 thereafter. In addition,
the BOA Credit Facility limits the AIMCO Operating Partnership from distributing
more than 80% of its Funds From
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Operations (as defined) to holders of OP Units, imposes minimum net worth
requirements and provides other financial covenants related to certain
unencumbered assets.
In October 1998, the AIMCO Operating Partnership and AIMCO entered into the
$300 million Interim Term Loan Agreement. The term loan matures in one year.
AIMCO used the proceeds to refinance existing outstanding indebtedness of
Insignia at the time of the merger.
In February 1998, the AIMCO Operating Partnership, as borrower, and AIMCO
and the Owners, as guarantors, entered into the five year, $50 million secured
WMF Credit Facility with Washington Mortgage, which provides for the conversion
of all or a portion of such revolving credit facility to a term facility. The
WMF Credit Facility provides that all the rights of Washington Mortgage are
assigned to FNMA, but FNMA does not assume Washington Mortgage's obligations
under the WMF Credit Facility. At the AIMCO Operating Partnership's request, the
commitment amount under the WMF Credit Facility may be increased to an amount
not to exceed $250 million, subject to the consent of Washington Mortgage and
FNMA in their sole and absolute discretion. The AIMCO Operating Partnership and
affiliates have pledged their ownership interests in the Owners as security for
its obligations under the WMF Credit Facility. The guarantees of the Owners are
secured by assets of the Owners, including four apartment properties and two
mortgage notes. Advances to the AIMCO Operating Partnership under the WMF Credit
Facility are funded with the proceeds of the sale to investors of
mortgage-backed securities issued by FNMA, that are secured by the advance and
an interest in the collateral. The interest rate on each advance is determined
by investor bids for such mortgage-backed securities, plus a margin presently
equal to 0.5%. The maturity date of each advance under the revolving portion of
the WMF Credit Facility is a date between three and nine months from the closing
date of the advance, as selected by the AIMCO Operating Partnership. Advances
under the term facility mature at a date, selected by the AIMCO Operating
Partnership, between ten and twenty years from the date of the advance. Subject
to certain conditions, the AIMCO Operating Partnership has the right to add or
substitute collateral. The WMF Credit Facility requires the Company to maintain
a ratio of debt to gross asset value of no more than 55%, an interest coverage
ratio of at least 225%, and a debt service coverage ratio of at least 14.5% for
the trailing 12 month period and 135% for the trailing three month period,
imposes minimum net worth requirements and also provides other financial
covenants and interest coverage ratio requirements that are specifically related
to the collateral. The AIMCO Operating Partnership had outstanding borrowings
under the WMF Credit Facility of $50.0 million as of June 30, 1998.
As a result of the Insignia merger, AIMCO assumed Insignia's obligations
under its 6 1/2% convertible debentures. In connection therewith, the AIMCO
Operating Partnership issued a convertible note to the Special Limited Partner
with terms economically equivalent to those of the convertible debentures. The
convertible note will mature on September 30, 2016 and bears interest at the
rate of 6.5% per annum, with quarterly interest payments payable in arrears.
Interest payments may be deferred from time to time, but not for more than 20
consecutive quarters. The convertible note is convertible into the AIMCO
Operating Partnership's Class E Partnership Preferred Units at $57.21 per unit
through September 30, 2016. The convertible note may be redeemed after November
1, 1999.
In September 1997, the Company entered into an interest rate lock agreement
with a major investment banking company, having a notional principal amount of
$75.0 million, in anticipation of refinancing certain floating rate
indebtedness. The interest rate lock agreement fixed the ten-year treasury rate
at 6.32%. During 1998, the Company refinanced certain mortgage indebtedness
relating to ten real estate partnerships and realized losses of approximately
$3.9 million, which have been deferred and will be amortized over the life of
the refinanced debt. These losses, when amortized, will result in effective
interest rates of 7.7% over the life of the refinanced debt.
On May 8, 1998, in connection with the consummation of the merger with
Ambassador, the Company assumed six interest rate swap agreements, having
termination dates between October 3, 2003, and March 3, 2004, with several major
investment banking firms. The swap agreements modify the interest
characteristics of a portion of the Company's outstanding debt. Each interest
rate swap agreement is designated with all or a portion of the principal balance
and term of a specific debt obligation. These agreements involve the exchange of
amounts based on a fixed interest rate for amounts based on variable interest
rates over the life of the
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agreement without an exchange of 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 adjustment of interest expense related to the debt.
The related interest amount payable to or receivable from counterparties is
included in other liabilities or assets. The fair value of the swap agreements
and changes in the fair value as a result of changes in market interest rates
are not recognized in the financial statements.
Pursuant to the terms of the swap and related credit support agreements,
the Company is required to post collateral to the swap providers for an amount
equal to their exposure, as defined, in each case to the extent that a specified
threshold is exceeded. The collateral posted by the Company may be in the form
of cash or governmental securities, as determined by the Company. At June 30,
1998, the Company had posted approximately $6.6 million in cash collateral under
its swap agreements. The Company estimates that for every 0.25% decrease in the
LIBOR interest rate yield, it will be required to post approximately $2 million
of additional collateral with the swap providers. If interest rates rise, the
Company estimates that for every 0.25% increase in the LIBOR interest rate yield
curve, recovery of the posted collateral of a similar amount will be received up
to the outstanding collateral balances.
On June 2, 1998, the Company settled one of the swap agreements. It is the
intent of the Company to terminate the remaining swap agreements in December,
1998. Based on the market value of the outstanding swap agreements at June 30,
1998, the Company had an unrealized loss of $1.9 million.
From time to time, the Company has offered to acquire and, in the future,
may offer to acquire the interests held by third party investors in certain
limited partnerships for which the Company acts as general partner. Any such
acquisitions will require funds to pay the purchase price for such interests.
Cash payments made in connection with such acquisitions totaled $10.9 million
for the six months ended June 30, 1998.
The Company expects to meet its short-term liquidity requirements,
including property acquisitions, tender offers, refinancings of short-term debt,
the funds needed to purchase shares of Insignia under the Call Agreements, the
IPT Shares and the funds needed for the Special Dividend, with long-term, fixed
rate, fully amortizing debt, secured or unsecured short-term indebtedness
(including indebtedness under the BOA Credit Facility, the WMF Credit Facility
and the Interim Term Loan Agreement), the issuance of debt securities,
Partnership OP Units or equity securities in public offerings or private
placements, and cash generated from operations. In April 1997, AIMCO filed a
shelf registration statement with the SEC that registered $1.0 billion of
securities for sale on a delayed or continuous basis. The shelf registration
statement was declared effective in May 1997. As of August 28, 1998, AIMCO had
issued common and preferred stock thereunder and received net proceeds of
approximately $726.8 million. The net proceeds from such offerings are
contributed by AIMCO to the Partnership.
As of June 30, 1998, 94% of the Company's Owned Properties and 43% of its
total assets were encumbered by debt, and the Company had total outstanding
indebtedness of $1,314.5 million, of which $1,196.0 was secured by Owned
Properties and other assets. The Company's indebtedness is comprised of $751.3
million of secured, long-term financing, $50.0 million of secured, short-term
financing, $394.7 million of secured, tax-exempt bonds and $118.5 million
outstanding under the BOA Credit Facility, which is unsecured. As of June 30,
1998, approximately 14% of the Company's indebtedness bears interest at variable
rates. General Motors Acceptance Corporation has made 93 loans (the "GMAC
Loans"), with an aggregate outstanding principal balance of $420.1 million as of
June 30, 1998, to property-owning partnerships controlled by the Company, each
of which is secured by the property owned by such partnership. GMAC Loans with
an aggregate outstanding principal balance of $163.8 million as of June 30,
1998, are cross-collateralized with certain other GMAC Loans, and certain loans
held by FNMA, having an aggregate principal balance of $303.9 million as of June
30, 1998, are cross-collateralized and cross-defaulted with certain other FNMA
loans to the Company. Other than certain GMAC Loans, FNMA loans and loans under
the BOA Credit Facility, the Interim Term Loan Agreement and the WMF Credit
Facility, none of the Company's debt is subject to cross-collateralization or
cross-default provisions. At June 30, 1998 the weighted average interest rate on
the Company's consolidated indebtedness was 7.9%, with a weighted average
maturity of 13 years.
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CAPITAL EXPENDITURES
For the six months ended June 30, 1998, the Company spent $13.5 million for
capital replacements (expenditures for routine maintenance of a property) and
$8.0 million for initial capital expenditures (expenditures at a property that
have been identified, at the time the property is acquired, as expenditures to
be incurred within one year of the acquisition). In addition, the Company spent
an aggregate of $5.3 million for capital enhancements (spending to increase a
property's revenue potential including renovations, developments and expansions)
and the renovation of four properties owned by the Company. These expenditures
were funded by working capital reserves, borrowings under the Company's credit
facilities and cash provided by operating activities. The Company reserves $300
per apartment unit per annum for capital replacements, which totaled $6.6
million for the six months ended June 30, 1998. The Company has $2.4 million of
reserved but unspent amounts remaining from prior periods that can be used for
future capital replacements. The Company expects to incur initial capital
expenditures and capital enhancements of approximately $56 million during the
balance of the year ended December 31, 1998. Initial capital expenditures and
capital enhancements will be funded with cash from operating activities and
borrowings under the Company's revolving credit facilities.
For the year ended December 31, 1997, the Company spent $7.4 million for
capital replacements, $9.1 million for initial capital expenditures, and $8.5
million for construction and capital enhancements (amenities that add a material
new feature or revenue source at a property). These expenditures were funded by
borrowings under the BOA Credit Facility, working capital reserves and net cash
provided by operating activities.
The Company's accounting treatment of various capital and maintenance costs
is detailed in the following table:
<TABLE>
<CAPTION>
ACCOUNTING DEPRECIABLE
EXPENDITURE TREATMENT LIFE IN YEARS
----------- ---------- -------------
<S> <C> <C>
Initial capital expenditures................................ capitalize 5 to 30
Capital enhancements........................................ capitalize 5 to 30
Capital replacements:
Carpet/vinyl replacement.................................. capitalize 5
Carpet cleaning........................................... expense N/A
Major appliance replacement (refrigerators, stoves,
dishwashers,
washers/dryers)........................................ capitalize 5
Cabinet replacement....................................... capitalize 5
Major new landscaping..................................... capitalize 5
Seasonal plantings and landscape replacements............. expense N/A
Roof replacements......................................... capitalize 30
Roof repairs.............................................. expense N/A
Model furniture........................................... capitalize 5
Office equipment.......................................... capitalize 5
Exterior painting, significant............................ capitalize 5
Interior painting......................................... expense N/A
Parking lot repairs....................................... expense N/A
Parking lot repaving...................................... capitalize 30
Equipment repairs......................................... expense N/A
General policy for capitalization......................... capitalize various
amounts in
excess of
$250
</TABLE>
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FUNDS FROM OPERATIONS
The Company measures its economic profitability based on Funds From
Operations ("FFO"). The Company's management believes that FFO provides
investors with an understanding of the Company's ability to incur and service
debt and make capital expenditures. The Board of Governors of the National
Association of Real Estate Investment Trusts ("NAREIT") defines FFO as net
income (loss), computed in accordance with generally accepted accounting
principles ("GAAP"), excluding gains and losses from debt restructuring and
sales of property, plus real estate related depreciation and amortization
(excluding amortization of financing costs), and after adjustments for
unconsolidated partnerships and joint ventures. The Company calculates FFO in a
manner based upon the NAREIT definition, as adjusted for the amortization of
management company goodwill, the non-cash, deferred portion of the income tax
provision for unconsolidated subsidiaries and the payment of dividends on
Preferred Units. FFO should not be considered as an alternative to net income or
net cash flows from operating activities, as calculated in accordance with GAAP,
as an indication of the Company's performance or as a measure of liquidity. FFO
is not necessarily indicative of cash available to fund future cash needs. In
addition, there can be no assurance that the Company's basis for computing FFO
is comparable with that of other real estate investment trusts.
For the six months ended June 30, 1998 and 1997, and the years ended
December 31, 1997, 1996 and 1995, the Company's FFO was as follows (amounts in
thousands):
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED
JUNE 30, FOR THE YEAR ENDED DECEMBER 31,
------------------- ---------------------------------
1998 1997 1997 1996 1995
-------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net income........................... $38,524 $11,464 $32,697 $15,673 $14,988
Extraordinary item................... -- 269 269 -- --
Gain on disposition of properties.... (2,526) -- (2,720) (44) --
Real estate depreciation, net of
minority interests................. 32,423 13,250 33,751 19,056 15,038
Amortization of management company
goodwill........................... 4,727 474 948 500 428
Equity in earnings of other
partnerships:
Real estate depreciation........... 9,131 697 6,280 -- --
Equity in earnings of unconsolidated
subsidiaries:
Real estate depreciation........... -- 1,263 3,584 -- --
Deferred taxes..................... 4,291 874 4,894 -- --
Amortization of management
contracts....................... 3,088 472 1,587 -- --
Less amortization of management
contracts where the recorded
values of certain contracts are
not expected to be recovered
through future cash flows....... -- (322) -- -- --
Preferred Unit distributions......... (6,001) -- (135) -- (5,169)
------- ------- ------- ------- -------
Funds From Operations (FFO).......... $83,657 $28,441 $81,155 $35,185 $25,285
======= ======= ======= ======= =======
Weighted average number of OP Units
and OP Unit equivalents
outstanding:
OP Units........................... 48,812 21,455 27,732 14,978 11,453
OP Unit equivalents................ 203 135 381 16 8
Preferred Units convertible to OP
Units........................... 2,463 -- 1,006 -- --
------- ------- ------- ------- -------
51,478 21,590 29,119 14,994 11,461
======= ======= ======= ======= =======
</TABLE>
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CASH FLOW
For the six months ended June 30, 1998 and 1997, and the years ended
December 31, 1997, 1996 and 1995, the Company's net cash flows were as follows
(amounts in thousands):
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
JUNE 30, FOR THE YEAR ENDED DECEMBER 31,
------------------------- -------------------------------
1998 1997 1997 1996 1995
----------- ----------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
CASH FLOW INFORMATION:
Cash flow provided by
operating activities...... $ 5,838 $ 25,035 $ 73,032 $ 38,806 $ 25,911
Cash flow used in investing
activities................ (100,669) (108,134) (717,663) (88,144) (60,821)
Cash flow provided by (used
in) financing
activities................ 107,063 91,450 668,549 60,129 30,145
</TABLE>
COMMITMENTS AND CONTINGENCIES
HUD Enforcement and Limited Denials of Participation
A significant number of units included in the AIMCO Properties are subject
to regulation by HUD. Under its regulations, HUD has the authority to suspend or
deny property owners and managers from participation in HUD programs with
respect to additional assistance within a geographic region through imposition
of an LDP by any HUD office or nationwide for violations of HUD regulatory
requirements. In March 1997, HUD announced its intention to step up enforcement
against property owners and managers who violate their agreements with HUD, and,
in July 1997, HUD announced the creation of a new department-wide enforcement
division. In June 1997, the St. Louis HUD field office issued an LDP to NHP as a
result of a physical inspection and mortgage default at one property owned and
managed by NHP-related companies. The LDP suspended NHP's ability to manage or
acquire additional HUD-assisted properties in eastern Missouri until June 24,
1998. Although the LDP has expired by its terms, the Company has proposed a
settlement agreement with HUD which includes aggregate payments to HUD of
approximately $485,000 and withdrawal of the LDP as of its date of issuance. The
Company believes a settlement will be executed in the near future. Because an
LDP is prospective, existing HUD agreements are not affected, so an LDP is not
expected to result in the loss of management service revenue from or to
otherwise affect properties that the Company currently manages in the subject
regions. In addition, the Company has resolved concerns raised by two other HUD
field offices. If HUD were to disapprove the Company as property manager for one
or more properties, the Company's ability to obtain property management revenues
from additional HUD-regulated properties may be impaired.
HUD monitors the performance of properties with HUD-insured mortgage loans.
HUD also monitors compliance with applicable regulations, and takes performance
and compliance into account in approving management of HUD-assisted properties.
In this regard, since July 1988, 29 HUD-assisted properties owned or managed by
NHP or NHP-related companies have defaulted on non-recourse HUD-insured mortgage
loans. Eight of these 29 properties are also currently managed by the Company.
An additional six properties owned or managed by NHP have received
unsatisfactory performance ratings. As a result of the defaults and
unsatisfactory ratings, the national HUD office must review any application by
the Company to act as property manager or owner for additional HUD-assisted
properties. The national HUD office has consistently approved NHP's applications
to manage new properties, and the Company received HUD clearance to acquire its
interests in NHP and NHP-related companies. The Company believes that it enjoys
a good working relationship with HUD and that the national office will continue
to apply the clearance process to large management portfolios such as the
Company's with discretion and flexibility. While there can be no assurance, the
Company believes that the unsatisfactory reviews and the mortgage defaults will
not have a material impact on its results of operations or financial condition.
In October 1997, NHP received a subpoena from the Inspector General of HUD
(the "Inspector General") requesting documents relating to any arrangement
whereby NHP or any of its affiliates provides or has provided compensation to
owners of HUD multifamily projects in exchange for or in connection with
property management of a HUD project. The Company believes that other owners and
managers of HUD
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projects have received similar subpoenas. Documents relating to certain of the
Company's acquisitions of property management rights for HUD projects may be
responsive to the subpoena. The Company is in the process of complying with the
subpoena and has provided certain documents to the Inspector General, without
conceding that they are responsive to the subpoena. The Company believes that
its operations are in compliance, in all material respects, with all laws, rules
and regulations relating to HUD-assisted or HUD-insured properties. Effective
February 13, 1998, counsel for the Company and the U.S. Attorney for the
Northern District of California entered into a tolling agreement related to
certain civil claims the government may have against the Company. Although no
action has been initiated against the Company or, to the Company's knowledge,
any owner of a HUD property managed by the Company, if any such action is taken
in the future, it could ultimately affect existing arrangements with respect to
HUD projects or otherwise have a material adverse effect on the Company's
results of operations.
Environmental
Under Federal, state and local environmental laws and regulations, a
current or previous owner or operator of real property may be required to
investigate and clean up a release of hazardous substances at such property, and
may, under such laws and common law, be held liable for property damage and
other costs incurred by third parties in connection with such releases. The
liability under certain of these laws has been interpreted to be joint and
several unless the harm is divisible or there is a reasonable basis for
allocation of responsibility. The failure to remediate the property properly may
also adversely affect the owner's ability to sell or rent the property or to
borrow using the property as collateral. In connection with its ownership,
operation or management of the AIMCO Properties, the Company could be
potentially liable for environmental liabilities or costs associated with its
properties or properties it may in the future acquire or manage.
Certain Federal, state and local laws and regulations govern the removal,
encapsulation or disturbance of asbestos-containing materials ("ACMs") when
those materials are in poor condition or in the event of building remodeling,
renovation or demolition; impose certain worker protection and notification
requirements and govern emissions of and exposure to asbestos fibers in the air.
These laws also impose liability for a release of ACMs and may enable third
parties to seek recovery from owners or operators of real properties for
personal injury associated with ACMs. In connection with the ownership,
operation or management of properties, the Company could be potentially liable
for those costs. There are ACMs at certain of the Owned Properties, and there
may be ACMs at certain of the other AIMCO Properties. The Company has developed
and implemented operations and maintenance programs, as appropriate, that
establish operating procedures with respect to the ACMs at most of the Owned
Properties, and intends to develop and implement, as appropriate, such programs
at AIMCO Properties that do not have such programs.
Certain of the Owned Properties, and some of the other AIMCO Properties,
are located on or near properties that contain or have contained underground
storage tanks or on which activities have occurred which could have released
hazardous substances into the soil or groundwater. There can be no assurances
that such hazardous substances have not been released or have not migrated, or
in the future will not be released or will not migrate, onto the AIMCO
Properties. Such hazardous substances have been released at certain Owned
Properties and, in at least one case, have migrated from an off-site location
onto the Company's property. In addition, the Company's Montecito property in
Austin, Texas, is located adjacent to, and may be partially on, land that was
used as a landfill. Low levels of methane and other landfill gas have been
detected at Montecito. The City of Austin, the former landfill operator, has
assumed responsibility for conducting all investigation and remedial activities
to date associated with the methane and other landfill gas. The remediation of
the landfill gas is now substantially complete and the Texas Natural Resources
Conservation Commission ("TNRCC") has preliminarily approved the methane gas
remediation efforts. Final approval of the site and the remediation process is
contingent upon the results of continued methane gas monitors to confirm the
effectiveness of the remediation efforts. Should further actionable levels of
methane gas be detected, the City of Austin may implement a proposed contingency
plan of passive methane gas venting. The City of Austin has also conducted
testing at Montecito to determine whether, and to what extent, groundwater has
been impacted. Based on test reports received to date by the Company, the
groundwater does not appear to be contaminated at actionable levels. The Company
has not incurred, and does not expect to incur, liability for the landfill
investigation and remediation. However, in connection with the present raising
of four of its
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buildings in order to install stabilizing piers under the building slabs, the
Company has relocated some of its tenants and has installed a venting system
according to the TNRCC's specifications. The restabilization was substantially
completed as of January 1998, at a total cost of approximately $550,000. The
City of Austin will be responsible for monitoring the conditions of Montecito.
All of the Owned Properties were subject to Phase I or similar
environmental audits by independent environmental consultants prior to
acquisition. The audits did not reveal, nor is the Company aware of, any
environmental liability relating to such properties that would have a material
adverse effect on the Company's business, assets or results of operations.
However, such audits involve a number of judgments and it is possible that such
audits did not reveal all environmental liabilities or that there are material
environmental liabilities of which the Company is unaware. In addition, the
Managed Properties may not have been subject to Phase I or similar environmental
audits by independent environmental consultants. While the Company is not aware
of any environmental liability that it believes would have a material adverse
effect on its business, financial condition or results of operations relating to
the Managed Properties, there can be no assurance that material environmental
liabilities of which the Company is unaware do not exist at such properties.
In October 1997, NHP received a letter (the "EPA Letter") from the U.S.
Department of Justice ("DOJ") which stated that the U.S. Environmental
Protection Agency ("EPA") has requested that the DOJ file a lawsuit against NHP
alleging, among other things, that NHP violated the Clean Air Act, the National
Recycling and Emissions Reduction Programs and associated regulations in
connection with the employment of certain unlicensed personnel, maintenance and
disposal of certain refrigerants, and record-keeping practices at two
properties. A settlement in principle between NHP and EPA has been reached
whereby NHP has agreed to pay a fine of less than $100,000, permit EPA to audit
40 NHP properties with respect to their use and disposal of such refrigerants,
and continue to provide training to all maintenance workers with respect to the
disposal of such refrigerants. A formal settlement agreement is expected to be
executed in 1998. It is possible that the future EPA audits agreed to in the
settlement could result in additional allegations by EPA of violations at such
properties; however, based on the terms of the settlement agreement with DOJ,
the Company anticipates that the fines, if any, resulting from such audits will
be nominal.
Uncertainties Regarding Status of Federal Subsidies
The Company owns and/or manages approximately 44,000 units that are
subsidized under Section 8 of the United States Housing Act of 1937, as amended
("Section 8"). These subsidies are generally provided pursuant to project-based
Housing Assistance Payment Contracts ("HAP Contracts") between HUD and the
owners of the properties or, with respect to a limited number of units managed
by the Company, pursuant to vouchers received by tenants. On October 27, 1997,
the President of the United States signed into law the Multifamily Assisted
Housing Reform and Affordability Act of 1997 (the "1997 Housing Act"). Under the
1997 Housing Act, the mortgage financing and HAP Contracts of certain properties
assisted under Section 8, with rents above market levels and financed with
HUD-insured mortgage loans, will be restructured by reducing subsidized rents to
market levels, thereby reducing rent subsidies, and lowering required debt
service payments as needed to ensure financial viability at the reduced rents
and subsidy levels. The 1997 Housing Act retains project-based subsidies for
most properties (properties in rental markets with limited supply, properties
serving the elderly and certain other properties).
The 1997 Housing Act phases out project-based subsidies on selected
properties serving families not located in the rental markets with limited
supply, converting such subsidies to a tenant-based subsidy. Under a tenant
based system, rent vouchers would be issued to qualified tenants who then could
elect to reside at a property of their choice, provided the tenant has the
financial ability to pay the difference between the selected property's monthly
rent and the value of the voucher, which would be established based on HUD's
regulated fair market rent for the relevant geographical areas. The 1997 Housing
Act provides that properties will begin the restructuring process in Federal
fiscal year 1999 (beginning October 1, 1998), and that HUD will issue final
regulations implementing the 1997 Housing Act on or before October 27, 1998.
Congress has elected to renew HAP Contracts expiring before October 1, 1998 for
one year terms, generally at existing rents, so long as the properties remain in
compliance with the HAP Contracts. While the Company does not expect the
provisions of the 1997 Housing Act to result in a significant number of tenants
relocating from properties
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managed by the Company, there can be no assurance that the provisions will not
significantly affect the Company's management portfolio. Furthermore, there can
be no assurance that other changes in Federal housing subsidy will not occur.
Any such changes could have an adverse effect on the Company's property
management revenues.
Year 2000 Compliance
The Company's management has determined that it will be necessary to modify
or replace certain accounting and operational software and hardware to enable
its computer systems to operate properly subsequent to December 31, 1999. As a
result, management has appointed a team of internal staff to research and manage
the conversion or replacement of existing systems to comply with year 2000
requirements. The team's activities are designed to ensure that there is no
adverse effect on the Company's core business operations, and that transactions
with tenants, suppliers and financial institutions are fully supported.
The Company utilizes numerous accounting and reporting software packages
and computer hardware to conduct its business, some of which already comply with
year 2000 requirements. Management estimates that the modification or
replacement of non-compliant accounting and reporting software and hardware will
total approximately $0.3 million.
The Company's management also believes that certain of the AIMCO Properties
possess operational systems (e.g. elevators, fire alarm and extinguishment
systems and security systems) which also must be modified or replaced in order
to function properly after December 31, 1999. Management is currently engaged in
the identification of all non-compliant operational systems, and has not yet
determined the estimated cost of replacing or modifying such systems.
High Performance Units
In January 1998, the AIMCO Operating Partnership sold 15,000 Class I High
Performance Partnership Units (the "High Performance Units") to a joint venture
formed by fourteen officers of the General Partner, SMP I, L.L.C., a Delaware
limited liability company ("SMP"), and to three of AIMCO's non-employee
directors for $2.1 million in cash. The High Performance Units have nominal
value unless the total return of AIMCO's Class A Common Stock (dividend income
plus share price appreciation), over the three year period ending December 31,
2000, is at least 30% and exceeds the industry average, as determined by a peer
group index, by at least 15%. At the conclusion of the three year period, if the
Total Return on AIMCO's Class A Common Stock satisfies these criteria, the
holders of the High Performance Units will receive distributions and allocations
of income and loss from the AIMCO Operating Partnership in the same amounts and
at the same times as would holders of a number of OP Units equal to the quotient
obtained by dividing (i) the product of (a) 15% of the amount by which the total
return on AIMCO's Class A Common Stock over the three year period exceeds the
greater of 115% of a peer group index or 30%, multiplied by (b) the weighted
average market value of AIMCO's equity capitalization (including Class A Common
Stock and OP Units), by (ii) the market value of one share of Class A Common
Stock at the end of the three year period. The three year measurement period
will be shortened in the event of a change of control of the Company. Unlike OP
Units, the High Performance Units are not redeemable or convertible into Class A
Common Stock unless a change of control of the Company occurs. Because there is
substantial uncertainty that the High Performance Units will have more than
nominal value due to the required performance criteria over the three year term,
the AIMCO Operating Partnership has not recorded any value to the High
Performance Units. If the measurement period would have ended June 30, 1998, the
value of the High Performance Units (the product referred to in clause (i)
above) would have been $17.2 million, and such High Performance Units would
represent no dilutive effect on net income per share.
Inflation
Substantially all of the leases at the Company's apartment properties are
for a period of six months or less, allowing, at the time of renewal, for
adjustments in the rental rate and the opportunity to re-lease the apartment
unit at the prevailing market rate. The short term nature of these leases
generally serves to minimize the risk to the Company of the adverse effect of
inflation and the Company does not believe that inflation has had a material
adverse impact on its revenues.
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FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS
The following is a summary of certain federal income tax consequences
resulting from the acquisition, holding, exchanging, and otherwise disposing of
Class A Common Stock and the Preferred Stock (collectively, the Class A Common
Stock and the Preferred Stock are referred to herein as the "AIMCO Stock"). This
discussion is based upon the Code, the Treasury Regulations, rulings issued by
the IRS, and judicial decisions, all in effect as of the date of this
Registration Statement and all of which are subject to change or differing
interpretation, possibly retroactively. Such summary is also based on the
assumptions that the operation of AIMCO, the AIMCO Operating Partnership and the
limited liability companies and limited partnerships in which they own
controlling interests (collectively, the "Subsidiary Partnerships") will be in
accordance with their respective organizational documents and partnership
agreements. This summary is for general information only and does not purport to
discuss all aspects of federal income taxation which may be important to a
particular investor in light of its investment or tax circumstances, or to
certain types of investors subject to special tax rules (including financial
institutions, broker-dealers, insurance companies, and, except to the extent
discussed below, tax-exempt organizations and foreign investors, as determined
for United States federal income tax purposes). This summary assumes that
investors will hold their AIMCO Stock as "capital assets" (generally, property
held for investment). No advance ruling has been or will be sought from the IRS
regarding any matter discussed in this Registration Statement.
THE FEDERAL INCOME TAX TREATMENT OF HOLDERS OF AIMCO STOCK DEPENDS IN SOME
INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF COMPLEX PROVISIONS OF
FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR AUTHORITY MAY BE
AVAILABLE. ACCORDINGLY, EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS TAX ADVISOR
REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF ACQUIRING,
HOLDING, EXCHANGING, OR OTHERWISE DISPOSING OF AIMCO STOCK AND OF AIMCO'S
ELECTION TO BE SUBJECT TO TAX, FOR FEDERAL INCOME TAX PURPOSES, AS A REAL ESTATE
INVESTMENT TRUST.
GENERAL
The REIT provisions of the Code are highly technical and complex. The
following summary sets forth certain aspects of the provisions of the Code that
govern the federal income tax treatment of a REIT and its stockholders. This
summary is qualified in its entirety by the applicable Code provisions, Treasury
Regulations, and administrative and judicial interpretations thereof, all of
which are subject to change, possibly retroactively.
AIMCO has elected to be taxed as a REIT under the Code commencing with its
taxable year ending December 31, 1994, and AIMCO intends to continue such
election. Although AIMCO believes, and it has received an opinion of Skadden,
Arps, Slate, Meagher & Flom LLP ("Counsel") to the effect that, commencing with
the AIMCO's initial taxable year ended December 31, 1994, AIMCO was organized in
conformity with the requirements for qualification as a REIT, and that its
actual method of operation has enabled, and its proposed method of operation
will enable it to meet the requirements for qualification and taxation as a REIT
under the Code, no assurance can be given that AIMCO has been or will remain so
qualified. It must be emphasized that this opinion is based and conditioned upon
certain assumptions and representations and covenants made by AIMCO as to
factual matters (including representations of and covenants concerning AIMCO's
properties and the past, present and future conduct of its business operations).
The opinion is expressed as of its date and Counsel has no obligation to advise
AIMCO of any subsequent change in the matters stated, represented or assumed or
any subsequent change in the applicable law. Moreover, the opinion of counsel is
conditioned on, and AIMCO's qualification and taxation as a REIT depends upon,
AIMCO's ability to meet, through actual annual operating results, distribution
levels and diversity of stock ownership, the various qualification tests imposed
under the Code as discussed below, the results of which have not been and will
not be reviewed by Counsel. No assurance can be given that the actual results of
AIMCO's operation for any one taxable year will satisfy such requirements. See
" -- Failure to Qualify." An opinion of counsel is not binding on the IRS, and
no assurance can be given that the IRS will not challenge AIMCO's eligibility
for taxation as a REIT.
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Provided AIMCO qualifies for taxation as a REIT, it will generally not be
subject to federal corporate income tax on its net income that is currently
distributed to its stockholders. This treatment substantially eliminates the
"double taxation" (at the corporate and stockholder levels) that generally
results from investment in a corporation. However, notwithstanding AIMCO's
qualification as a REIT, AIMCO will be subject to federal income tax as follows:
First, AIMCO will be taxed at regular corporate rates on any undistributed REIT
taxable income, including undistributed net capital gains. Second, under certain
circumstances, AIMCO may be subject to the "alternative minimum tax" on its
items of tax preference. Third, if AIMCO has net income from prohibited
transactions (which are, in general, certain sales or other dispositions of
property held primarily for sale to customers in the ordinary course of business
other than foreclosure property), such income will be subject to a 100% tax.
Fourth, if AIMCO should fail to satisfy the 75% gross income test or the 95%
gross income test (as discussed below), but has nonetheless maintained its
qualification as a REIT because certain other requirements have been met, it
will be subject to a 100% tax on an amount equal to (a) the gross income
attributable to the greater of the amount by which AIMCO fails the 75% or 95%
test multiplied by (b) a fraction intended to reflect AIMCO's profitability.
Fifth, if AIMCO should fail to distribute during each calendar year at least the
sum of (i) 85% of its REIT ordinary income for such year, (ii) 95% of its REIT
capital gain net income for such year (other than certain long-term capital
gains that AIMCO elects to retain and pay the tax thereon), and (iii) any
undistributed taxable income from prior periods, AIMCO would be subjected to a
4% excise tax on the excess of such required distribution over the amounts
actually distributed. Sixth, if AIMCO acquires assets from a corporation that is
not a REIT (a "C corporation") in a transaction in which the adjusted tax basis
of the assets in the hands of AIMCO is determined by reference to the adjusted
tax basis of such assets in the hands of the C corporation (such as the assets
acquired from Insignia in the Insignia Merger), under Treasury Regulations not
yet promulgated, the C corporation would be required to recognize any net
Built-In Gain (as defined below) that would have been realized if the C
corporation had liquidated on the day before the date of the transfer. Pursuant
to IRS Notice 88-19, AIMCO may elect, in lieu of the treatment described above,
to be subject to tax at the highest regular corporate tax rate on any gain it
recognizes on the disposition of any such asset during the ten-year period
beginning on the day on which AIMCO acquires such asset to the extent of the
excess, if any, of the fair market value over the adjusted basis of such asset
as of its acquisition date ("Built-in Gain"). AIMCO intends to make such an
election and, therefore, will be taxed at the highest regular corporate rate on
such Built-in Gain if, and to the extent, such assets are sold within the
specified ten-year period. It should be noted that AIMCO has acquired (and may
acquire in the future) a significant amount of assets with Built-in Gain and a
taxable disposition by AIMCO of any of these assets within ten years of their
acquisitions would subject AIMCO to tax under the foregoing rule. Seventh, AIMCO
could be subject to foreign taxes on its investments and activities in foreign
jurisdictions. In addition, AIMCO could also be subject to tax in certain
situations and on certain transactions not presently contemplated.
Requirements for Qualification
The Code defines a REIT as a corporation, trust or association (1) that is
managed by one or more trustees or directors; (2) the beneficial ownership of
which is evidenced by transferable shares, or by transferable certificates of
beneficial interest; (3) which would be taxable as a domestic corporation, but
for the special Code provisions applicable to REITs; (4) that is neither a
financial institution nor an insurance company subject to certain provisions of
the Code; (5) the beneficial ownership of which is held by 100 or more persons;
(6) in which, during the last half of each taxable year, not more than 50% in
value of the outstanding stock is owned, directly or indirectly, by five or
fewer individuals (as defined in the Code to include certain entities); and (7)
which meets certain other tests described below (including with respect to the
nature of its income and assets). The Code provides that conditions (1) through
(4) must be met during the entire taxable year, and that condition (5) must be
met during at least 335 days of a taxable year of 12 months, or during a
proportionate part of a taxable year of less than 12 months. The Charter
provides certain restrictions regarding transfers of its shares, which
provisions are intended to assist AIMCO in satisfying the share ownership
requirements described in conditions (5) and (6) above.
To monitor AIMCO's compliance with the share ownership requirements, AIMCO
is required to maintain records regarding the actual ownership of its shares. To
do so, AIMCO must demand written
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statements each year from the record holders of certain percentages of its stock
in which the record holders are to disclose the actual owners of the shares
(i.e., the persons required to include in gross income the REIT dividends). A
list of those persons failing or refusing to comply with this demand must be
maintained as part of AIMCO's records. A stockholder who fails or refuses to
comply with the demand must submit a statement with its tax return disclosing
the actual ownership of the shares and certain other information.
In addition, a corporation may not elect to become a REIT unless its
taxable year is the calendar year. AIMCO satisfies this requirement.
Ownership of Partnership Interests
In the case of a REIT that is a partner in a partnership, Treasury
Regulations provide that the REIT is deemed to own its proportionate share of
the partnership's assets and to earn its proportionate share of the
partnership's income. In addition, the assets and gross income of the
partnership retain the same character in the hands of the REIT for purposes of
the gross income and asset tests applicable to REITs as described below. Thus,
AIMCO's proportionate share of the assets, liabilities and items of income of
the Subsidiary Partnerships generally will be treated as assets, liabilities and
items of income of AIMCO for purposes of applying the REIT requirements
described herein. A summary of certain rules governing the federal income
taxation of partnerships and their partners is provided below in "Tax Aspects of
AIMCO's Investments in Partnerships."
Income Tests
In order to maintain qualification as a REIT, AIMCO annually must satisfy
two gross income requirements. First, at least 75% of AIMCO's gross income
(excluding gross income from "prohibited transactions," i.e., certain sales of
property held primarily for sale to customers in the ordinary course of
business) for each taxable year must be derived directly or indirectly from
investments relating to real property or mortgages on real property (including
"rents from real property" and, in certain circumstances, interest) or from
certain types of temporary investments. Second, at least 95% of AIMCO's gross
income (excluding gross income from prohibited transactions) for each taxable
year must be derived from such real property investments, and from dividends,
interest and gain from the sale or disposition of stock or securities (or from
any combination of the foregoing).
Rents received by AIMCO through the Subsidiary Partnerships will qualify as
"rents from real property" in satisfying the gross income requirements described
above, only if several conditions are met, including the following. If rent
attributable to personal property leased in connection with a lease of real
property is greater than 15% of the total rent received under the lease, then
the portion of rent attributable to such personal property will not qualify as
"rents from real property." Moreover, for rents received to qualify as "rents
from real property," the REIT generally must not operate or manage the property
or furnish or render services to the tenants of such property, other than
through an "independent contractor" from which the REIT derives no revenue.
However, AIMCO (or its affiliates) is permitted to directly perform services
that are "usually or customarily rendered" in connection with the rental of
space for occupancy only and are not otherwise considered rendered to the
occupant of the property. In addition, AIMCO (or its affiliates) may provide
non-customary services to tenants of its properties without disqualifying all of
the rent from the property if the payment for such services does not exceed 1%
of the total gross income from the property. For purposes of this test, the
income received from such non-customary services is deemed to be at least 150%
of the direct cost of providing the services.
Certain other subsidiaries of the Company that manage the Managed
Properties (collectively, the "Management Subsidiaries") receive management fees
and other income. A portion of such fees and other income accrue to AIMCO
through distributions from the Management Subsidiaries that are classified as
dividend income to the extent of the earnings and profits of the Management
Subsidiaries. Such distributions will generally qualify under the 95% gross
income test but not under the 75% gross income test.
If AIMCO fails to satisfy one or both of the 75% or 95% gross income tests
for any taxable year, it may nevertheless qualify as a REIT for such year if it
is entitled to relief under certain provisions of the Code.
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These relief provisions will be generally available if AIMCO's failure to meet
such tests was due to reasonable cause and not due to willful neglect, AIMCO
attaches a schedule of the sources of its income to its return, and any
incorrect information on the schedule was not due to fraud with intent to evade
tax. It is not possible, however, to state whether in all circumstances AIMCO
would be entitled to the benefit of these relief provisions. If these relief
provisions are inapplicable to a particular set of circumstances involving
AIMCO, AIMCO will not qualify as a REIT. As discussed above in "-- General,"
even where these relief provisions apply, a tax is imposed with respect to the
excess net income.
Asset Tests
AIMCO, at the close of each quarter of its taxable year, must also satisfy
three tests relating to the nature of its assets. First, at least 75% of the
value of AIMCO's total assets must be represented by real estate assets
(including its allocable share of real estate assets held by the Subsidiary
Partnerships), certain stock or debt instruments purchased by AIMCO with new
capital, cash, cash items and U.S. government securities. Second, not more than
25% of AIMCO's total assets may be represented by securities other than those in
the 75% asset class. Third, of the investments included in the 25% asset class,
the value of any one issuer's securities owned by AIMCO may not exceed 5% of the
value of AIMCO's total assets, and AIMCO may not own more than 10% of any one
issuer's outstanding voting securities.
AIMCO indirectly owns interests in the Management Subsidiaries. As set
forth above, the ownership of more than 10% of the voting securities of any one
issuer by a REIT or the investment of more than 5% of the REIT's total assets in
any one issuer's securities is prohibited by the asset tests. AIMCO believes
that its indirect ownership interests in the Management Subsidiaries qualify
under the asset tests set forth above. However, no independent appraisals have
been obtained to support AIMCO's conclusions as to the value of the AIMCO
Operating Partnership's total assets and the value of the AIMCO Operating
Partnership's interest in the Management Subsidiaries and these values are
subject to change in the future. Accordingly, there can be no assurance that the
IRS will not contend that the AIMCO Operating Partnership's ownership interests
in the Management Subsidiaries disqualifies AIMCO from treatment as a REIT.
AIMCO's indirect interests in the AIMCO Operating Partnership and other
Subsidiary Partnerships are generally held through wholly owned corporate
subsidiaries of AIMCO organized and operated as "qualified REIT subsidiaries"
within the meaning of the Code. Qualified REIT subsidiaries are not treated as
separate entities from their parent REIT for federal income tax purposes.
Instead, all assets, liabilities and items of income, deduction and credit of
each qualified REIT subsidiary are treated as assets, liabilities and items of
AIMCO. Each qualified REIT subsidiary therefore is not subject to federal
corporate income taxation, although it may be subject to state or local
taxation. In addition, AIMCO's ownership of the voting stock of each qualified
REIT subsidiary does not violate the general restriction against ownership of
more than 10% of the voting securities of any issuer.
Annual Distribution Requirements
In order for AIMCO to qualify as a REIT, AIMCO is required to distribute
dividends (other than capital gain dividends) to its stockholders in an amount
at least equal to (A) the sum of (i) 95% of AIMCO's "REIT taxable income"
(computed without regard to the dividends paid deduction and AIMCO's net capital
gain) and (ii) 95% of the net income (after tax), if any, from foreclosure
property, minus (B) the sum of certain items of noncash income. Such
distributions must be paid in the taxable year to which they relate, or in the
following taxable year if declared before AIMCO timely files its tax return for
such year and if paid with or before the first regular dividend payment after
such declaration. To the extent that AIMCO distributes at least 95%, but less
than 100%, of its "REIT taxable income," as adjusted, it will be subject to tax
thereon at ordinary corporate tax rates. AIMCO may elect to retain, rather than
distribute, its net long-term capital gains and pay tax on such gains. In such a
case, AIMCO's stockholders would include their proportionate share of such
undistributed long-term capital gains in income and receive a credit for their
share of the tax paid by AIMCO. AIMCO's stockholders would then increase the
adjusted basis of their AIMCO shares by the difference between the designated
amounts included in their long-term capital gains and the tax deemed paid with
respect to their shares. If AIMCO should fail to distribute during each calendar
year at least the sum of
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(i) 85% of its REIT ordinary income for such year and (ii) 95% of its REIT
capital gain net income for such year (excluding retained long-term capital
gains), and (iii) any undistributed taxable income from prior periods, AIMCO
would be subject to a 4% excise tax on the excess of such required distribution
over the amounts actually distributed. AIMCO believes that it has made, and
intends to make, timely distributions sufficient to satisfy these annual
distribution requirements.
It is possible that AIMCO, from time to time, may not have sufficient cash
to meet the 95% distribution requirement due to timing differences between (i)
the actual receipt of cash (including receipt of distributions from the AIMCO
Operating Partnership) and (ii) the inclusion of certain items in income by
AIMCO for federal income tax purposes. In the event that such timing differences
occur, in order to meet the 95% distribution requirement, AIMCO may find it
necessary to arrange for short-term, or possibly long-term, borrowings, or to
pay dividends in the form of taxable distributions of property.
Under certain circumstances, AIMCO may be able to rectify a failure to meet
the distribution requirement for a year by paying "deficiency dividends" to
stockholders in a later year, which may be included in AIMCO's deduction for
dividends paid for the earlier year. Thus, AIMCO may be able to avoid being
taxed on amounts distributed as deficiency dividends; however, AIMCO will be
required to pay interest and a penalty based on the amount of any deduction
taken for deficiency dividends.
Distribution of Acquired Earnings and Profits
The Code provides that when a REIT acquires a corporation that is currently
a C corporation (i.e., a corporation without a REIT election), the REIT may
qualify as a REIT only if, as of the close of the year of acquisition, the REIT
has no "earnings and profits" acquired from such C corporation. AIMCO has
retained, and may in the future retain, independent certified public accountants
to review the determination of certain acquired corporation's earnings and
profits for purposes of this requirement. Any adjustments to an acquired
corporation's income for taxable years ending on or before the closing of the
acquisition, including as a result of an examination of its returns by the IRS,
could affect the calculation of the acquired corporation's earnings and profits.
Furthermore, the determination of earnings and profits requires the resolution
of certain technical tax issues with respect to which there is no authority
directly on point and, consequently, the proper treatment of these issues for
earnings and profits purposes is not free from doubt. There can be no assurance
that the IRS will not examine the tax returns of the acquired corporation and
propose adjustments to increase its taxable income and therefore its earnings
and profits. In this regard, the IRS can consider all taxable years of the
acquired corporation as open for review for purposes of determining the amount
of such earnings and profits. If AIMCO failed to distribute an amount equal to
any such acquired corporation's earnings and profits effective on or before the
end of the year of acquisition, AIMCO would not qualify as a REIT.
Failure to Qualify
If AIMCO fails to qualify for taxation as a REIT in any taxable year, and
the relief provisions do not apply, AIMCO will be subject to tax (including any
applicable alternative minimum tax) on its taxable income at regular corporate
rates. Distributions to stockholders in any year in which AIMCO fails to qualify
will not be deductible by AIMCO nor will they be required to be made. In such
event, to the extent of current and accumulated earnings and profits, all
distributions to stockholders will be taxable as ordinary income, and, subject
to certain limitations of the Code, corporate distributees may be eligible for
the dividends received deduction. Unless AIMCO is entitled to relief under
specific statutory provisions, AIMCO would also be disqualified from taxation as
a REIT for the four taxable years following the year during which qualification
was lost. It is not possible to state whether in all circumstances AIMCO would
be entitled to such statutory relief.
TAX ASPECTS OF AIMCO'S INVESTMENTS IN PARTNERSHIPS
General
Substantially all of AIMCO's investments are held indirectly through the
AIMCO Operating Partnership. In general, partnerships are "pass-through"
entities that are not subject to federal income tax. Rather,
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partners are allocated their proportionate shares of the items of income, gain,
loss, deduction and credit of a partnership, and are potentially subject to tax
thereon, without regard to whether the partners receive a distribution from the
partnership. AIMCO will include in its income its proportionate share of the
foregoing partnership items for purposes of the various REIT income tests and in
the computation of its REIT taxable income. Moreover, for purposes of the REIT
asset tests, AIMCO will include its proportionate share of assets held by the
Subsidiary Partnerships. See "-- Federal Income Taxation of AIMCO and AIMCO
Stockholders -- General."
Entity Classification
AIMCO's direct and indirect investment in partnerships involves special tax
considerations, including the possibility of a challenge by the IRS of the
status of any of the Subsidiary Partnerships as a partnership (as opposed to an
association taxable as a corporation) for federal income tax purposes. If any of
these entities were treated as an association for federal income tax purposes,
it would be subject to an entity-level tax on its income. In such a situation,
the character of AIMCO's assets and items of gross income would change and could
preclude AIMCO from satisfying the asset tests and the income tests (see "--
Federal Income Taxation of AIMCO and AIMCO Stockholders -- Asset Tests" and "--
Federal Income Taxation of AIMCO and AIMCO Stockholders -- Income Tests"), and
in turn could prevent AIMCO from qualifying as a REIT. See "-- Federal Income
Taxation of AIMCO and AIMCO Stockholders -- Failure to Qualify" above for a
discussion of the effect of AIMCO's failure to meet such tests for a taxable
year. In addition, any change in the status of any of the Subsidiary
Partnerships for tax purposes might be treated as a taxable event, in which case
AIMCO might incur a tax liability without any related cash distributions.
Tax Allocations with Respect to the Properties
Under the Code and the Treasury Regulations, income, gain, loss and
deduction attributable to appreciated or depreciated property that is
contributed to a partnership in exchange for an interest in the partnership must
be allocated in a manner such that the contributing partner is charged with, or
benefits from, respectively, the unrealized gain or unrealized loss associated
with the property at the time of the contribution. The amount of such unrealized
gain or unrealized loss is generally equal to the difference between the fair
market value of the contributed property at the time of contribution, and the
adjusted tax basis of such property at the time of contribution (a "Book -- Tax
Difference"). Such allocations are solely for federal income tax purposes and do
not affect the book capital accounts or other economic or legal arrangements
among the partners. See "-- Federal Income Taxation of the AIMCO Operating
Partnership and OP Unitholders -- Tax Consequences Upon Contribution of Property
to the AIMCO Operating Partnership." The AIMCO Operating Partnership was formed
by way of contributions of appreciated property (including certain of the Owned
Properties). Consequently, allocations must be made in a manner consistent with
these requirements. Where a partner contributes cash to a partnership that holds
appreciated property, the Treasury Regulations provide for a similar allocation
of such items to the other partners. These rules apply to the contribution by
AIMCO to the AIMCO Operating Partnership of the cash proceeds received in any
offerings of its stock.
In general, certain OP Unitholders will be allocated lower amounts of
depreciation deductions for tax purposes and increased taxable income and gain
on the sale by the AIMCO Operating Partnership or other Subsidiary Partnerships
of the contributed properties. This will tend to eliminate the Book-Tax
Difference over the life of these partnerships. However, the special allocations
do not always entirely rectify the Book-Tax Difference on an annual basis or
with respect to a specific taxable transaction such as a sale. Thus, the
carryover basis of the contributed properties in the hands of the AIMCO
Operating Partnership or other Subsidiary Partnerships may cause AIMCO to be
allocated lower depreciation and other deductions, and possibly greater amounts
of taxable income in the event of a sale of such contributed assets in excess of
the economic or book income allocated to it as a result of such sale. This may
cause AIMCO to recognize taxable income in excess of cash proceeds, which might
adversely affect AIMCO's ability to comply with the REIT distribution
requirements. See "-- Federal Income Taxation of AIMCO and AIMCO Stockholders --
Annual Distribution Requirements."
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With respect to any property purchased or to be purchased by any of the
Subsidiary Partnerships (other than through the issuance of OP Units) subsequent
to the formation of AIMCO, such property will initially have a tax basis equal
to its fair market value and the special allocation provisions described above
will not apply.
Sale of the Properties
AIMCO's share of any gain realized by the AIMCO Operating Partnership or
any other Subsidiary Partnership on the sale of any property held as inventory
or primarily for sale to customers in the ordinary course of business will be
treated as income from a prohibited transaction that is subject to a 100%
penalty tax. See "-- Taxation of AIMCO and AIMCO
Stockholders -- General -- Income Tests." Under existing law, whether property
is held as inventory or primarily for sale to customers in the ordinary course
of a partnership's trade or business is a question of fact that depends on all
the facts and circumstances with respect to the particular transaction. In
general, the AIMCO Operating Partnership and the other Subsidiary Partnerships
intend to hold the Owned Properties for investment with a view to long-term
appreciation, to engage in the business of acquiring, developing, owning and
operating the Owned Properties (and other apartment properties) and to make such
occasional sales of the Owned Properties, including peripheral land, as are
consistent with AIMCO's investment objectives.
TAXATION OF MANAGEMENT SUBSIDIARIES
A portion of the amounts to be used to fund distributions to stockholders
is expected to come from distributions made by the Management Subsidiaries to
the AIMCO Operating Partnership, and interest paid by the Management
Subsidiaries on certain notes held by the AIMCO Operating Partnership. In
general, the Management Subsidiaries pay federal, state and local income taxes
on their taxable income at normal corporate rates. Any federal, state or local
income taxes that the Management Subsidiaries are required to pay will reduce
AIMCO's cash flow from operating activities and its ability to make payments to
holders of its securities.
TAXATION OF TAXABLE DOMESTIC STOCKHOLDERS
Distributions
Provided AIMCO qualifies as a REIT, distributions made to AIMCO's taxable
domestic stockholders out of current or accumulated earnings and profits (and
not designated as capital gain dividends) will be taken into account by them as
ordinary income and will not be eligible for the dividends received deduction
for corporations. Distributions (and retained long-term capital gains) that are
designated as capital gain dividends will be taxed as long-term capital gains
(to the extent that they do not exceed AIMCO's actual net capital gain for the
taxable year) without regard to the period for which the stockholder has held
its stock. However, corporate stockholders may be required to treat up to 20% of
certain capital gain dividends as ordinary income. In addition, certain capital
gain dividends may be taxed at different rates, depending on the type of gain by
AIMCO.
Distributions in excess of current and accumulated earnings and profits
will not be taxable to a stockholder to the extent that they do not exceed the
adjusted basis of the stockholder's shares in respect of which the distributions
were made, but rather will reduce the adjusted basis of such shares. To the
extent that such distributions exceed the adjusted basis of a stockholder's
shares in respect of which the distributions were made, they will be included in
income as long-term capital gain (or short-term capital gain if the shares have
been held for one year or less) provided that the shares are a capital asset in
the hands of the stockholder. In addition, any dividend declared by AIMCO in
October, November or December of any year and payable to a stockholder of record
on a specified date in any such month will be treated as both paid by AIMCO and
received by the stockholder on December 31 of such year, provided that the
dividend is actually paid by AIMCO during January of the following calendar
year. Stockholders may not include in their individual income tax returns any
net operating losses or capital losses of AIMCO.
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Dispositions of AIMCO Stock
In general, capital gains recognized by individuals and other non-corporate
taxpayers upon the sale or disposition of AIMCO Stock will be subject to a
maximum federal income tax rate of 20% if the AIMCO Stock is held for more than
12 months and will be taxed at ordinary income rates if the AIMCO Stock is held
for 12 months or less. Capital losses recognized by a stockholder upon the
disposition of AIMCO Stock held for more than one year at the time of
disposition will be a long-term capital loss. In addition, any loss upon a sale
or exchange of shares of AIMCO Stock by a stockholder who has held such shares
for six months or less (after applying certain holding period rules) will be
treated as a long-term capital loss to the extent of distributions from AIMCO
required to be treated by such stockholder as long-term capital gain.
A redemption of the Preferred Stock will be treated under Section 302 of
the Code as a dividend subject to tax at ordinary income tax rates (to the
extent of AIMCO's current or accumulated earnings and profits), unless the
redemption satisfies certain tests set forth in Section 302(b) of the Code
enabling the redemption to be treated as a sale or exchange of the Preferred
Stock. The redemption will satisfy such test if it (i) is "substantially
disproportionate" with respect to the holder, (ii) results in a "complete
termination" of the holder's stock interest in AIMCO, or (iii) is "not
essentially equivalent to a dividend" with respect to the holder, all within the
meaning of Section 302(b) of the Code. In determining whether any of these tests
have been met, shares considered to be owned by the holder by reason of certain
constructive ownership rules set forth in the Code, as well as shares actually
owned, must generally be taken into account. Because the determination as to
whether any of the alternative tests of Section 302(b) of the Code is satisfied
with respect to any particular holder of the Preferred Stock will depend upon
the facts and circumstances as of the time the determination is made,
prospective investors are advised to consult their own tax advisors to determine
such tax treatment. If a redemption of the Preferred Stock is treated as a
distribution that is taxable as a dividend, the amount of the distribution would
be measured by the amount of cash and the fair market value of any property
received by the stockholder. The stockholder's adjusted tax basis in such
redeemed Preferred Stock would be transferred to the holder's remaining
stockholdings in AIMCO. If, however, the stockholder has no remaining
stockholdings in AIMCO, such basis may, under certain circumstances, be
transferred to a related person or it may be lost entirely.
TAXATION OF FOREIGN STOCKHOLDERS
The following is a discussion of certain anticipated U.S. federal income
and estate tax consequences of the ownership and disposition of AIMCO Stock
applicable to Non-U.S. Holders of AIMCO Stock. A "Non-U.S. Holder" is any person
other than (i) a citizen or resident of the United States, (ii) a corporation or
partnership created or organized in the United States or under the laws of the
United States or of any state thereof or the District of Columbia, (iii) an
estate whose income is includible in gross income for U.S. federal income tax
purposes regardless of its source or (iv) a trust if a United States court is
able to exercise primary supervision over the administration of such trust and
one or more United States fiduciaries have the authority to control all
substantial decisions of such trust. The discussion is based on current law and
is for general information only. The discussion addresses only certain and not
all aspects of U.S. federal income and estate taxation.
Ordinary Dividends
The portion of dividends received by Non-U.S. Holders payable out of
AIMCO's earnings and profits which are not attributable to capital gains of
AIMCO and which are not effectively connected with a U.S. trade or business of
the Non-U.S. Holder will be subject to U.S. withholding tax at the rate of 30%
(unless reduced by treaty). In general, Non-U.S. Holders will not be considered
engaged in a U.S. trade or business solely as a result of their ownership of
AIMCO Stock. In cases where the dividend income from a Non-U.S. Holder's
investment in AIMCO Stock is (or is treated as) effectively connected with the
Non-U.S. Holder's conduct of a U.S. trade or business, the Non-U.S. Holder
generally will be subject to U.S. tax at graduated rates, in the same manner as
U.S. Holders are taxed with respect to such dividends (and may also be subject
to the 30% branch profits tax in the case of a Non-U.S. Holder that is a
corporation).
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Non-Dividend Distributions
Unless AIMCO Stock constitutes a United States Real Property Interest (a
"USRPI") within the meaning of the Foreign Investment in Real Property Tax Act
of 1980 ("FIRPTA"), distributions by AIMCO which are not dividends out of the
earnings and profits of AIMCO will not be subject to U.S. income or withholding
tax. If it cannot be determined at the time a distribution is made whether or
not such distribution will be in excess of current and accumulated earnings and
profits, the distribution will be subject to withholding at the rate applicable
to dividends. However, the Non-U.S. Holder may seek a refund of such amounts
from the IRS if it is subsequently determined that such distribution was, in
fact, in excess of current and accumulated earnings and profits of AIMCO. If
AIMCO Stock constitutes a USRPI, such distributions will be subject to 10%
withholding and taxed pursuant to FIRPTA at a rate of 35% to the extent such
distributions exceed a stockholder's basis in his or her AIMCO Stock.
Capital Gain Dividends
Under FIRPTA, a distribution made by AIMCO to a Non-U.S. Holder, to the
extent attributable to gains from dispositions of USRPIs such as the properties
beneficially owned by AIMCO ("USRPI Capital Gains"), will be considered
effectively connected with a U.S. trade or business of the Non-U.S. Holder and
subject to U.S. income tax at the rates applicable to U.S. individuals or
corporations, without regard to whether such distribution is designated as a
capital gain dividend. In addition, AIMCO will be required to withhold tax equal
to 35% of the amount of dividends to the extent such dividends constitute USRPI
Capital Gains. Distributions subject to FIRPTA may also be subject to a 30%
branch profits tax in the hands of Non-U.S. Holder that is a corporation.
Dispositions of AIMCO Stock
Unless AIMCO Stock constitutes a USRPI, a sale of such stock by a Non-U.S.
Holder generally will not be subject to U.S. taxation under FIRPTA. The stock
will not constitute a USRPI if AIMCO is a "domestically controlled REIT." A
domestically controlled REIT is a REIT in which, at all times during a specified
testing period, less than 50% in value of its shares is held directly or
indirectly by Non-U.S. Holders. AIMCO believes that it is, and it expects to
continue to be, a domestically controlled REIT. If AIMCO is, and continues to
be, a domestically controlled REIT, the sale of AIMCO Stock should not be
subject to taxation under FIRPTA. Because various classes of stock of AIMCO
(including the Class A Common Stock) are publicly traded, however, no assurance
can be given that AIMCO is or will continue to be a domestically controlled
REIT.
If AIMCO does not constitute a domestically controlled REIT, a Non-U.S.
Holder's sale of stock of AIMCO generally will still not be subject to tax under
FIRPTA as a sale of a USRPI provided that (i) the stock is "regularly traded"
(as defined by applicable Treasury Regulations) on an established securities
market (e.g., the NYSE, on which AIMCO Class A Common Stock is listed) and the
selling Non-U.S. Holder held 5% or less of such class of AIMCO stock at all
times during a specified testing period or (ii) the stock is not regularly
traded on an established securities market and is convertible into stock that is
so regularly traded and the value of such convertible stock held by the selling
Non-U.S. Holder at all times during a specified testing period is less than or
equal to the value of 5% of the regularly traded class of stock into which such
stock is convertible.
If gain on the sale of AIMCO Stock were subject to taxation under FIRPTA,
the Non-U.S. Holder generally would be subject to the same treatment as a U.S.
stockholder with respect to such gain (subject to applicable alternative minimum
tax and a special alternative minimum tax in the case of nonresident alien
individuals) and the purchaser of the stock could be required to withhold 10% of
the purchase price and remit such amount to the IRS.
Gain from the sale of AIMCO Stock that would not otherwise be subject to
FIRPTA will nonetheless be taxable in the United States to a Non-U.S. Holder in
two cases. First, if the Non-U.S. Holder's investment in the AIMCO Stock is
effectively connected with a U.S. trade or business conducted by such Non-U.S.
Holder, the Non-U.S. Holder will be subject to the same treatment as a U.S.
stockholder with respect to such gain.
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Second, if the Non-U.S. Holder is a nonresident alien individual who was present
in the United States for 183 days or more during the taxable year and has a "tax
home" in the United States, the nonresident alien individual will be subject to
a 30% tax on the individual's capital gain.
Estate Tax
AIMCO Stock owned or treated as owned by an individual who is not a citizen
or resident (as specially defined for U.S. federal estate tax purposes) of the
United States at the time of death will be includible in the individual's gross
estate for U.S. federal estate tax purposes, unless an applicable estate tax
treaty provides otherwise. Such individual's estate may be subject to U.S.
federal estate tax on the property includible in the estate for U.S. federal
estate tax purposes.
INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING
AIMCO will report to its U.S. stockholders and to the IRS the amount of
distributions paid during each calendar year, and the amount of tax withheld, if
any. Under the backup withholding rules, a stockholder may be subject to backup
withholding at the rate of 31% with respect to distributions paid unless such
holder (i) is a corporation or comes within certain other exempt categories and,
when required, demonstrates this fact or (ii) provides a taxpayer identification
number, certifies as to no loss of exemption from backup withholding, and
otherwise complies with the applicable requirements of the backup withholding
rules. A stockholder who does not provide AIMCO with his correct taxpayer
identification number also may be subject to penalties imposed by the IRS. Any
amount paid as backup withholding will be creditable against the stockholder's
income tax liability. In addition, AIMCO may be required to withhold a portion
of capital gain distributions to any Non-U.S. Holders who fail to certify their
foreign status to AIMCO. The IRS has issued final Treasury Regulations regarding
the backup withholding rules as applied to Non-U.S. Holders. Those final
Treasury Regulations alter the current system of backup withholding compliance
and will be effective for payments made after December 31, 1999. Prospective
investors in AIMCO Stock should consult their tax advisors regarding the
application of these Treasury Regulations.
TAXATION OF TAX-EXEMPT STOCKHOLDERS
Tax-exempt entities, including qualified employee pension and profit
sharing trusts and individual retirement accounts ("Exempt Organizations"),
generally are exempt from federal income taxation. However, they are subject to
taxation on their unrelated business taxable income ("UBTI"). While many
investments in real estate generate UBTI, the IRS has ruled that dividend
distributions from a REIT to an exempt employee pension trust do not constitute
UBTI, provided that the shares of the REIT are not otherwise used in an
unrelated trade or business of the exempt employee pension trust. Based on that
ruling, amounts distributed by AIMCO to Exempt Organizations should generally
not constitute UBTI. However, if an Exempt Organization finances its acquisition
of the AIMCO Stock with debt, a portion of its income from AIMCO will constitute
UBTI pursuant to the "debt-financed property" rules. Furthermore, social clubs,
voluntary employee benefit associations, supplemental unemployment benefit
trusts, and qualified group legal services plans that are exempt from taxation
under paragraphs (7), (9), (17) and (20), respectively, of Section 501(c) of the
Code are subject to different UBTI rules, which generally will require them to
characterize distributions from AIMCO as UBTI. In addition, in certain
circumstances, a pension trust that owns more than 10% of AIMCO's stock is
required to treat a percentage of the dividends from AIMCO as UBTI (the "UBTI
Percentage"). The UBTI Percentage is the gross income derived by AIMCO from an
unrelated trade or business (determined as if AIMCO were a pension trust)
divided by the gross income of AIMCO for the year in which the dividends are
paid. The UBTI rule applies to a pension trust holding more than 10% of AIMCO's
stock only if (i) the UBTI Percentage is at least 5%, (ii) AIMCO qualifies as a
REIT by reason of the modification of the 5/50 Rule that allows the
beneficiaries of the pension trust to be treated as holding shares of AIMCO in
proportion to their actuarial interest in the pension trust, and (iii) either
(A) one pension trust owns more than 25% of the value of AIMCO's stock or (B) a
group of pension trusts each individually holding more than 10% of the value of
AIMCO's stock collectively owns more that 50% of the value of
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AIMCO's stock. The restrictions on ownership and transfer of AIMCO's stock
should prevent an Exempt Organization from owning more than 10% of the value of
AIMCO's stock.
FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP
AND OP UNITHOLDERS
The following is a summary of certain federal income tax consequences
resulting from the acquisition, holding, exchanging, and otherwise disposing of
OP Units. This discussion is based upon the Code, the Treasury Regulations,
rulings issued by the IRS, and judicial decisions, all in effect as of the date
of this Registration Statement and all of which are subject to change or
differing interpretation, possibly retroactively. Such summary is also based on
the assumptions that the operation of AIMCO, the AIMCO Operating Partnership and
the Subsidiary Partnerships will be in accordance with their respective
organizational documents and partnership agreements. This summary is for general
information only and does not purport to discuss all aspects of federal income
taxation which may be important to a particular investor in light of its
investment or tax circumstances, or to certain types of investors subject to
special tax rules (including financial institutions, broker-dealers, insurance
companies, and, except to the extent discussed below, tax-exempt organizations
and foreign investors, as determined for Federal income tax purposes). This
summary assumes that investors will hold their OP Units as "capital assets"
(generally, property held for investment). No advance ruling has been or will be
sought from the IRS regarding any matter discussed in this Registration
Statement.
THE FEDERAL INCOME TAX TREATMENT OF HOLDERS OF OP UNITS DEPENDS IN SOME
INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF COMPLEX PROVISIONS OF
FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR AUTHORITY MAY BE
AVAILABLE. ACCORDINGLY, EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS TAX ADVISOR
REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF ACQUIRING,
HOLDING, EXCHANGING, OR OTHERWISE DISPOSING OF OP UNITS AND OF AIMCO'S ELECTION
TO BE SUBJECT TO TAX, FOR FEDERAL INCOME TAX PURPOSES, AS A REAL ESTATE
INVESTMENT TRUST.
PARTNERSHIP STATUS
AIMCO has received an opinion of Counsel to the effect that, for federal
income tax purposes the AIMCO Operating Partnership is classified as a
partnership and not as an association taxable as a corporation. It must be
emphasized that this opinion of Counsel is based on and conditioned upon certain
assumptions and representations and on opinions of local counsel with respect to
matters of local law. The opinion is expressed as of its date and Counsel has no
obligation to advise AIMCO of any subsequent change in matters stated,
represented or assumed or any subsequent change in the applicable law. An
opinion of Counsel is not binding on the IRS, and no assurance can be given that
the IRS will not challenge the status of the AIMCO Operating Partnership as a
partnership.
Some partnerships are, for federal income tax purposes, characterized not
as partnerships but as associations taxable as corporations or as "publicly
traded partnerships" taxable as corporations. A partnership will be classified
as a publicly traded partnership if interests therein are traded on an
"established securities market" or are "readily tradable" on a "secondary market
(or the substantial equivalent thereof)."
The AIMCO Operating Partnership believes and intends to take the position
that the AIMCO Operating Partnership should not be classified as a publicly
traded partnership because (i) the OP Units are not traded on an established
securities market and (ii) the OP Units should not be considered readily
tradable on a secondary market or the substantial equivalent thereof. The
determination of whether interests in a partnership are readily tradable on a
secondary market or the substantial equivalent thereof, however, depends on
various facts and circumstances (including facts that are not within the control
of the AIMCO Operating Partnership). Treasury Regulations generally effective
for taxable years beginning after December 31, 1995 (the "PTP Regulations")
provide limited safe harbors, which, if satisfied, will prevent a partnership's
interests from being treated as readily tradable on a secondary market or the
substantial equivalent thereof. Under a
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grandfather rule, certain existing partnerships may rely on safe harbors
contained in IRS Notice 88-75 rather than on the safe harbors contained in the
PTP Regulations for all taxable years of the partnership beginning before
January 1, 2006. The AIMCO Operating Partnership believes that it is subject to
such grandfather rule and that it cannot rely on the safe harbors contained in
the PTP Regulations. The AIMCO Operating Partnership may not have satisfied any
of the safe harbors in Notice 88-75 in its previous tax years. In addition,
because the AIMCO Operating Partnership's ability to satisfy a safe harbor in
Notice 88-75 (or to the extent applicable, a safe harbor in the PTP Regulations)
may involve facts that are not within its control, it is not possible to predict
whether the AIMCO Operating Partnership will satisfy a safe harbor in future tax
years. The safe harbors in Notice 88-75 are not intended to be substantive rules
for the determination of whether partnership interests are readily tradable on a
secondary market or the substantial equivalent thereof, and consequently, the
failure to meet these safe harbors will not necessarily cause the AIMCO
Operating Partnership to be treated as a publicly traded partnership. No
assurance can be given, however, that the IRS will not assert that partnerships
such as the AIMCO Operating Partnership constitute publicly traded partnerships,
or that facts and circumstances will not develop which could result in the AIMCO
Operating Partnership being treated as a publicly traded partnership.
If the AIMCO Operating Partnership were classified as a publicly traded
partnership, it would nevertheless not be taxable as a corporation as long as
90% or more of its gross income consists of "qualifying income." In general,
qualifying income includes interest, dividends, real property rents (as defined
by section 856 of the Code) and gain from the sale or disposition of real
property. The AIMCO Operating Partnership believes that more than 90% of its
gross income consists of qualifying income and expects that more than 90% of its
gross income in future tax years will consist of qualifying income. In such
event, even if the AIMCO Operating Partnership were characterized as a publicly
traded partnership, it would not be taxable as a corporation. If the AIMCO
Operating Partnership were characterized as a publicly traded partnership,
however, each OP Unitholder would be subject to special rules under section 469
of the Code. See "Limitations on Deductibility of Losses -- Passive Activity
Loss Limitation." No assurance can be given that the actual results of the AIMCO
Operating Partnership's operations for any one taxable year will enable it to
satisfy the qualifying income exception.
If the AIMCO Operating Partnership were classified as an association or
publicly traded partnership taxable as a corporation (because it did not meet
the qualifying income exception discussed above), it would be subject to tax at
the entity level as a regular corporation and OP Unitholders would be subject to
tax in the same manner as stockholders of a corporation. Thus, the AIMCO
Operating Partnership would be subject to federal tax (and possibly state and
local taxes) on its net income, determined without reduction for any
distributions made to the OP Unitholders, at regular federal corporate income
tax rates, thereby reducing the amount of any cash available for distribution to
the OP Unitholders, which reduction could also materially and adversely impact
the liquidity and value of the OP Units. In addition, the AIMCO Operating
Partnership's items of income, gain, loss, deduction and expense would not be
passed through to the OP Unitholders and the OP Unitholders would not be subject
to tax on the income earned by the AIMCO Operating Partnership. Distributions
received by an OP Unitholder from the AIMCO Operating Partnership, however,
would be treated as dividend income for federal income tax purposes, subject to
tax as ordinary income to the extent of current and accumulated earnings and
profits of the AIMCO Operating Partnership, and the excess, if any, as a
nontaxable return of capital to the extent of the OP Unitholder's adjusted tax
basis in his AIMCO Operating Partnership interest (without taking into account
Partnership liabilities), and thereafter as gain from the sale of a capital
asset. Characterization of the AIMCO Operating Partnership as an association or
publicly traded partnership taxable as a corporation would also result in the
termination of AIMCO's status as a REIT for federal income tax purposes, which
would have a material adverse impact on AIMCO. See "Federal Income Taxation of
AIMCO and AIMCO Stockholders -- Tax Aspects of AIMCO's Investments in
Partnerships."
No assurances can be given that the IRS would not challenge the status of
the AIMCO Operating Partnership as a "partnership" which is not "publicly
traded" for federal income tax purposes or that a court would not reach a result
contrary to such positions. Accordingly, each prospective investor is urged to
consult his tax advisor regarding the classification and treatment of the AIMCO
Operating Partnership as a "partnership" for federal income tax purposes.
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The following discussion assumes that the AIMCO Operating Partnership is,
and will continue to be, classified and taxed as a partnership for federal
income tax purposes.
TAXATION OF OP UNITHOLDERS
In general, a partnership is treated as a "pass-through" entity for federal
income tax purposes and is not itself subject to federal income taxation. Each
partner of a partnership, however, is subject to tax on his allocable share of
partnership tax items, including partnership income, gains, losses, deductions,
and expenses ("Partnership Tax Items") for each taxable year of the partnership
ending within or with such taxable year of the partner, regardless of whether he
receives any actual distributions from the partnership during the taxable year.
Generally, the characterization of any particular Partnership Tax Item is
determined at the partnership, rather than at the partner level, and the amount
of a partner's allocable share of such item is governed by the terms of the
partnership agreement.
No federal income tax will be payable by the AIMCO Operating Partnership.
Instead, each OP Unitholder will be (i) required to include in income his
allocable share of any AIMCO Operating Partnership income or gains and (ii)
entitled to deduct his allocable share of any AIMCO Operating Partnership
deductions or losses, but only to the extent of the OP Unitholder's adjusted tax
basis in his AIMCO Operating Partnership interest and subject to the "at risk"
and "passive activity loss" rules discussed below under the heading "Limitations
on the Deductibility of Losses." An OP Unitholder's allocable share of the AIMCO
Operating Partnership's taxable income may exceed the cash distributions to the
OP Unitholder for any year if the AIMCO Operating Partnership retains its
profits rather than distributing them.
ALLOCATIONS OF AIMCO OPERATING PARTNERSHIP PROFITS AND LOSSES
For federal income tax purposes, an OP Unitholder's allocable share of the
AIMCO Operating Partnership's Partnership Tax Items will be determined by the
AIMCO Operating Partnership Agreement if such allocations either have
"substantial economic effect" or are determined to be in accordance with the OP
Unitholder's interests in the AIMCO Operating Partnership. The manner in which
Partnership Tax Items of the AIMCO Operating Partnership are allocated is
described above under the heading "Description of OP Units--Allocations of Net
Income and Net Loss." If the allocations provided by the AIMCO Operating
Partnership Agreement were successfully challenged by the IRS, the
redetermination of the allocations to a particular OP Unitholder for federal
income tax purposes may be less favorable than the allocation set forth in the
AIMCO Operating Partnership Agreement.
TAX BASIS OF A PARTNERSHIP INTEREST
A partner's adjusted tax basis in his partnership interest is relevant,
among other things, for determining (i) gain or loss upon a taxable disposition
of his partnership interest, (ii) gain upon the receipt of partnership
distributions, and (iii) the limitations imposed on the use of partnership
deductions and losses allocable to such partner. Generally, the adjusted tax
basis of an OP Unitholder's interest in the AIMCO Operating Partnership is equal
to (A) the sum of the adjusted tax basis of the property contributed by the OP
Unitholder to the AIMCO Operating Partnership in exchange for an interest in the
AIMCO Operating Partnership and the amount of cash, if any, contributed by the
OP Unitholder to the AIMCO Operating Partnership, (B) reduced, but not below
zero, by the OP Unitholder's allocable share of AIMCO Operating Partnership
distributions, deductions, and losses, (C) increased by the OP Unitholder's
allocable share of AIMCO Operating Partnership income and gains, and (D)
increased by the OP Unitholder's allocable share of the AIMCO Operating
Partnership liabilities and decreased by the OP Unitholder's liabilities assumed
by the AIMCO Operating Partnership.
CASH DISTRIBUTIONS
Cash distributions received from a partnership do not necessarily correlate
with income earned by the partnership as determined for federal income tax
purposes. Thus, an OP Unitholder's federal income tax liability in respect of
his allocable share of the AIMCO Operating Partnership taxable income for a
particular
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taxable year may exceed the amount of cash, if any, received by the OP
Unitholder from the AIMCO Operating Partnership during such year.
If cash distributions, including a "deemed" cash distribution as discussed
below, received by an OP Unitholder in any taxable year exceed his allocable
share of the AIMCO Operating Partnership taxable income for the year, the excess
will constitute, for federal income tax purposes, a return of capital to the
extent of such OP Unitholder's adjusted tax basis in his AIMCO Operating
Partnership interest. Such return of capital will not be includible in the
taxable income of the OP Unitholder, for federal income tax purposes, but it
will reduce, but not below zero, the adjusted tax basis of the AIMCO Operating
Partnership interest held by the OP Unitholder. If an OP Unitholder's tax basis
in his AIMCO Operating Partnership interest is reduced to zero, a subsequent
cash distribution received by the OP Unitholder will be subject to tax as
capital gain and/or ordinary income, but only if, and to the extent that, such
distribution exceeds the subsequent positive adjustments, if any, to the tax
basis of the OP Unitholder's AIMCO Operating Partnership interest as determined
at the end of the taxable year during which such distribution is received. A
decrease in an OP Unitholder's share of the AIMCO Operating Partnership
liabilities resulting from the payment or other settlement of such liabilities
is generally treated, for federal income tax purposes, as a deemed cash
distribution. A decrease in an OP Unitholder's percentage interest in the AIMCO
Operating Partnership, because of the issuance by the AIMCO Operating
Partnership of additional OP Units, or otherwise, will decrease an OP
Unitholder's share of nonrecourse liabilities of the AIMCO Operating
Partnership, if any, and thus, will result in a corresponding deemed
distribution of cash.
A non-pro rata distribution (or deemed distribution) of money or property
may result in ordinary income to an OP Unitholder, regardless of such OP
Unitholder's tax basis in his OP Units, if the distribution reduces such OP
Unitholder's share of the AIMCO Operating Partnership's "Section 751 Assets."
"Section 751 Assets" are defined by the Code to include "unrealized receivables"
or "substantially appreciated inventory." For this purpose, inventory is
substantially appreciated if its value exceeds 120% of its adjusted basis. Among
other things, "unrealized receivables" include amounts attributable to
previously claimed depreciation deductions on certain types of property. To the
extent that such a reduction in an OP Unitholder's share of Section 751 Assets
occurs, the AIMCO Operating Partnership will be deemed to have distributed a
proportionate share of the Section 751 Assets to the OP Unitholder followed by a
deemed exchange of such assets with the AIMCO Operating Partnership in return
for the non-pro rata portion of the actual distribution made to such OP
Unitholder. This deemed exchange will generally result in the realization of
ordinary income under Section 751(b) by the OP Unitholder. Such income will
equal the excess of (1) the non-pro rata portion of such distribution over (2)
the OP Unitholder's tax basis in such OP Unitholder's share of such Section 751
Assets deemed relinquished in the exchange.
TAX CONSEQUENCES UPON CONTRIBUTION OF PROPERTY TO THE AIMCO OPERATING
PARTNERSHIP
Generally, Section 721 of the Code provides that neither the Contributing
Partner nor the AIMCO Operating Partnership will recognize a gain or loss, for
federal income tax purposes, upon a contribution of property to the AIMCO
Operating Partnership in exchange for OP Units. Notwithstanding this general
rule of nonrecognition, the Contributing Partner may recognize a gain where the
property transferred is subject to liabilities, or the AIMCO Operating
Partnership assumes liabilities in connection with a transfer of property, and
the amount of such liabilities exceeds the amount of the AIMCO Operating
Partnership liabilities allocated to the Contributing Partner as determined
immediately after the transfer. Such excess is treated by the Contributing
Partner, for federal income tax purposes, as the receipt of a deemed
distribution of cash to the Contributing Partner from the AIMCO Operating
Partnership. If a person transfers to the AIMCO Operating Partnership an
interest in another partnership (the "Underlying Partnership") in exchange for
an OP Unit, the person will be treated, for federal income tax purposes, as
having transferred to the AIMCO Operating Partnership his allocable share of the
liabilities of the Underlying Partnership, which could result in, or increase
the amount of, a deemed cash distribution. As discussed above, such deemed cash
distributions are generally treated as a nontaxable return of capital to the
extent of the Contributing Partner's adjusted tax basis in his OP Units and
thereafter as gain from the sale of such partnership interest.
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If a Contributing Partner receives or is deemed to receive for federal
income tax purposes, cash in addition to OP Units upon the contribution of
property to the AIMCO Operating Partnership, the transaction will likely be
treated as part contribution of property and part sale of property. In such
event, the Contributing Partner will recognize gain or loss with respect to the
portion of the property that is deemed sold to the AIMCO Operating Partnership.
If a Contributing Partner transfers property to the AIMCO Operating
Partnership in exchange for an OP Unit and the adjusted tax basis of such
property differs from its fair market value, AIMCO Operating Partnership Tax
Items must be allocated in a manner such that the Contributing Partner is
charged with, or benefits from, respectively, the unrealized gain or unrealized
loss associated with the property at the time of the contribution. Where a
partner contributes cash to a partnership that holds appreciated property, the
Treasury Regulations provide for a similar allocation of such items to the other
partners. These rules may apply to a contribution by AIMCO to the AIMCO
Operating Partnership of cash proceeds received by AIMCO from the offering of
its stock. Such allocations are solely for federal income tax purposes and do
not affect the book capital accounts or other economic or legal arrangements
among the OP Unitholders. The general purpose underlying this provision is to
specially allocate certain Partnership Tax Items in order to place both the
noncontributing and Contributing Partners in the same tax position that they
would have been in had the Contributing Partner contributed property with an
adjusted tax basis equal its fair market value. Treasury Regulations provide the
AIMCO Operating Partnership with several alternative methods and allow the AIMCO
Operating Partnership to adopt any other reasonable method to make allocations
to reduce or eliminate Book-Tax Differences. The AIMCO GP, in its discretion and
in a manner consistent with the Treasury Regulations, will select and adopt a
method of allocating AIMCO Operating Partnership Tax Items, including the
remedial allocation method, for purposes of eliminating such disparities.
In general, certain OP Unitholders will be allocated lower amounts of
depreciation deductions for tax purposes and increased amounts of taxable income
and gain on the sale by the AIMCO Operating Partnership or other Subsidiary
Partnerships of the contributed properties. Accordingly, in the event the AIMCO
Operating Partnership disposes of contributed property, income attributable to
the Book-Tax Difference of such contributed property generally will be allocated
to the Contributing Partner, and the other OP Unitholders generally will be
allocated only their share of gains attributable to appreciation, if any,
occurring after the contribution of the contributed property. These incremental
allocations of income will not result in additional cash distributions to the
Contributing Partner, with the result that the Contributing Partner may not
necessarily receive cash sufficient to pay the taxes attributable to such
income. These allocations will tend to eliminate the Book-Tax Differences with
respect to the contributed property over the life of the AIMCO Operating
Partnership. However, the special allocation rules of Section 704(c) do not
always entirely rectify the Book-Tax Difference on an annual basis or with
respect to a specific taxable transaction such as a sale. Thus, the carryover
basis of the contributed property in the hands of the AIMCO Operating
Partnership may cause a noncontributing OP Unitholder to be allocated lower
amounts of depreciation and other deductions for tax purposes than would be
allocated to such OP Unitholder if the contributed property had a tax basis
equal to its fair market value at the time of contribution, and possibly to be
allocated taxable gain in the event of a sale of the contributed property in
excess of the economic or book income allocated to it as a result of such sale.
This may cause noncontributing OP Unitholders to recognize taxable income in
excess of cash proceeds.
LIMITATIONS ON DEDUCTIBILITY OF LOSSES
Basis Limitation. To the extent that an OP Unitholder's allocable share of
AIMCO Operating Partnership deductions and losses exceeds his adjusted tax basis
in his AIMCO Operating Partnership interest at the end of the of the taxable
year in which the losses and deductions flow through, the excess losses and
deductions cannot be utilized, for federal income tax purposes, by the OP
Unitholder in such year. The excess losses and deductions may, however, be
utilized in the first succeeding taxable year in which, and to the extent that,
there is an increase in the tax basis of the AIMCO Operating Partnership
interest held by such OP Unitholder, but only to the extent permitted under the
"at risk" and "passive activity loss" rules discussed below.
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"At Risk" Limitation. Under the "at risk" rules of section 465 of the Code,
a noncorporate taxpayer and a closely held corporate taxpayer are generally not
permitted to claim a deduction, for federal income tax purposes, in respect of a
loss from an activity, whether conducted directly by the taxpayer or through an
investment in a partnership, to the extent that the loss exceeds the aggregate
dollar amount which the taxpayer has "at risk" in such activity at the close of
the taxable year. To the extent that losses are not permitted to be used in any
taxable year, such losses may be carried over to subsequent taxable years and
may be claimed as a deduction by the taxpayer if, and to the extent that, the
amount which the taxpayer has "at risk" is increased. Provided certain
requirements are met, the at risk rules generally do not apply to losses arising
from any activity which constitutes "the holding of real property," which the
holding of an OP Unit generally should constitute.
"Passive Activity Loss" Limitation. The passive activity loss rules of
section 469 of the Code limit the use of losses derived from passive activities,
which generally includes an investment in limited partnership interests such as
the OP Units. If an investment in an OP Unit is treated as a passive activity,
an OP Unitholder who is an individual investor, as well as certain other types
of investors, would not be able to use losses from the AIMCO Operating
Partnership to offset nonpassive activity income, including salary, business
income, and portfolio income (e.g., dividends, interest, royalties, and gain on
the disposition of portfolio investments) received during the taxable year.
Passive activity losses that are disallowed for a particular taxable year may,
however, be carried forward to offset passive activity income earned by the OP
Unitholder in future taxable years. In addition, such disallowed losses may be
claimed as a deduction, subject to the basis and at risk limitations discussed
above, upon a taxable disposition of the Unitholder's entire interest in the
AIMCO Operating Partnership, regardless of whether such OP Unitholder has
received any passive activity income during the year of disposition.
If the AIMCO Operating Partnership were characterized as a publicly traded
partnership, each OP Unitholder would be required to treat any loss derived from
the AIMCO Operating Partnership separately from any income or loss derived from
any other publicly traded partnership, as well as from income or loss derived
from other passive activities. In such case, any net losses or credits
attributable to the AIMCO Operating Partnership which are carried forward may
only be offset against future income of the AIMCO Operating Partnership.
Moreover, unlike other passive activity losses, suspended losses attributable to
the AIMCO Operating Partnership would only be allowed upon the complete
disposition of the OP Unitholder's "entire interest" in the AIMCO Operating
Partnership (rather than upon the disposition of an interest in an "activity").
SECTION 754 ELECTION
The AIMCO Operating Partnership has made the election permitted by Section
754 of the Code. Such election is irrevocable without the consent of the IRS.
The election will generally permit a purchaser of OP Units, such as AIMCO when
it acquires AIMCO OP Units from OP Unitholders, to adjust its share of the basis
in the AIMCO Operating Partnership's properties pursuant to Section 743(b) of
the Code to fair market value (as reflected by the value of consideration paid
for the OP Units), as if such purchaser had acquired a direct interest in the
AIMCO Operating Partnership assets. The Section 743(b) adjustment is attributed
solely to a purchaser of OP Units and is not added to the bases of the AIMCO
Operating Partnership's assets associated with all of the OP Unitholders in the
AIMCO Operating Partnership.
DEPRECIATION
Section 168(i)(7) of the Code provides that in the case of property
transferred to a partnership in a Section 721 transaction, the transferee shall
be treated as the transferor for purposes of computing the depreciation
deduction with respect to so much of the basis in the hands of the transferee as
does not exceed the adjusted basis in the hands of the transferor. The effect of
this rule would be to continue the historic basis, placed in service dates and
methods with respect to the depreciation of the properties being contributed by
a Contributing Partner to the AIMCO Operating Partnership in exchange for OP
Units. However, an acquiror of OP Units that obtains a Section 743(b) adjustment
by reason of such acquisition (see "Section 754
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Election," above) generally will be allowed depreciation with respect to such
adjustment beginning as of the date of the exchange as if it were new property
placed in service as of that date.
SALE, REDEMPTION OR EXCHANGE OF OP UNITS
An OP Unitholder will recognize a gain or loss upon a sale of an OP Unit, a
redemption of an OP Unit for cash, an exchange of an OP Unit for shares of AIMCO
Stock, or other taxable disposition of an OP Unit. Gain or loss recognized upon
a sale or exchange of an OP Unit will be equal to the difference between (i) the
amount realized in the transaction (i.e., the sum of the cash and the fair
market value of any property received for the OP Unit) plus the amount of AIMCO
Operating Partnership liabilities allocable to the OP Unit at such time and (ii)
the OP Unitholder's tax basis in the OP Unit disposed of, which tax basis will
be adjusted for the OP Unitholder's allocable share of the AIMCO Operating
Partnership's income or loss for the taxable year of the disposition. In the
case of a gift of an OP Unit, an OP Unitholder may be deemed to have an amount
realized equal to the amount of the AIMCO Operating Partnership's nonrecourse
liabilities allocable to such OP Unit, and to the extent that the amount
realized exceeds the OP Unitholder's basis for the OP Unit disposed of, such OP
Unitholder will recognize gain for federal income tax purposes. The tax
liability resulting from the gain recognized on a disposition of an OP Unit
could exceed the amount of cash and the fair market value of property received.
If the AIMCO Operating Partnership redeems an OP Unitholder's OP Units for
cash (which is not contributed by AIMCO to effect the redemption), the tax
consequences generally would be the same as described in the preceding
paragraphs, except that if the AIMCO Operating Partnership redeems less than all
of an OP Unitholder's OP Units, the OP Unitholder would recognize no taxable
loss and would recognize taxable gain only to the extent that the cash, plus the
amount of AIMCO Operating Partnership liabilities allocable to the redeemed OP
Units, exceeded the OP Unitholder's adjusted tax basis in all of such OP
Unitholder's OP Units immediately before the redemption.
Capital gains recognized by individuals and certain other noncorporate
taxpayers upon the sale or disposition of an OP Unit will be subject to a
maximum federal income tax rate of 20% if the OP Unit is held for more than 12
months and will be taxed at ordinary income tax rates if the OP Unit is held for
12 months or less. Generally, gain or loss recognized by an OP Unitholder on the
sale or other taxable disposition of an OP Unit will be taxable as capital gain
or loss. However, to the extent that the amount realized upon the sale or other
taxable disposition of an OP Unit attributable to an OP Unitholder's share of
"unrealized receivables" of the AIMCO Operating Partnership exceeds the basis
attributable to those assets, such excess will be treated as ordinary income.
Among other things, "unrealized receivables" include amounts attributable to
previously claimed depreciation deductions on certain types of property. In
addition, the maximum federal income tax rate for net capital gains attributable
to the sale of depreciable real property (which may be determined to include an
interest in a partnership such as the AIMCO Operating Partnership) held for more
than 12 months is currently 25% (rather than 20%) to the extent of previously
claimed depreciation deductions that would not be treated as "unrealized
receivables."
TERMINATION OF THE AIMCO OPERATING PARTNERSHIP
In the event of the dissolution of the AIMCO Operating Partnership, a
distribution of AIMCO Operating Partnership property (other than money and
marketable securities) will not result in taxable gain to an OP Unitholder
(except to the extent provided in Section 737 of the Code for liquidations
occurring within seven years of the date of contribution by an OP Unitholder of
property to the AIMCO Operating Partnership), and the OP Unitholder will hold
such distributed property with a basis equal to the adjusted basis of such OP
Units exchanged therefor, reduced by any money distributed in liquidation.
Further, the liquidation of the AIMCO Operating Partnership will be taxable to a
holder of Units to the extent that the value of any money and marketable
securities distributed in liquidation (including any money deemed distributed as
a result of relief from liabilities) exceeds such OP Unitholder's tax basis in
his OP Units.
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ALTERNATIVE MINIMUM TAX
The Code contains different sets of minimum tax rules applicable to
corporate and noncorporate investors. The discussion below relates only to the
alternative minimum tax applicable to noncorporate taxpayers. Accordingly,
corporate investors should consult with their tax advisors with respect to the
effect of the corporate minimum tax provisions that may be applicable to them.
Noncorporate taxpayers are subject to an alternative minimum tax to the extent
the tentative minimum tax ("TMT") exceeds the regular income tax otherwise
payable. The rate of tax imposed on the alternative minimum taxable income
("AMTI") in computing TMT is 26% on the first $175,000 of alternative minimum
taxable income in excess of an exemption amount and 28% on any additional
alternative minimum taxable income of noncorporate investors. In general, AMTI
consists of the taxpayer's taxable income, determined with certain adjustments,
plus his items of tax preference. For example, alternative minimum taxable
income is calculated using an alternative cost recovery (depreciation) system
that is not as favorable as the methods provided for under Section 168 of the
Code which the AIMCO Operating Partnership will use in computing its income for
regular federal income tax purposes. Accordingly, an OP Unitholder's AMTI
derived from the AIMCO Operating Partnership may be higher than such OP
Unitholder's share of the AIMCO Operating Partnership's net taxable income.
Prospective investors should consult with their tax advisors as to the impact of
an investment in OP Units on their liability for the alternative minimum tax.
INFORMATION RETURNS AND AUDIT PROCEDURES
The AIMCO Operating Partnership will use all reasonable efforts to furnish
to each OP Unitholder within 90 days after the close of each taxable year of the
AIMCO Operating Partnership, certain tax information, including a Schedule K-1,
which sets forth each OP Unitholder's allocable share of the AIMCO Operating
Partnership's Taxable Items. In preparing this information the AIMCO GP will use
various accounting and reporting conventions to determine the respective OP
Unitholder's allocable share of Partnership Tax Items. The AIMCO GP cannot
assure a current or prospective OP Unitholder that the IRS will not successfully
contend in court that such accounting and reporting conventions are
impermissible.
No assurance can be given that the AIMCO Operating Partnership will not be
audited by the IRS or that tax adjustments will not be made. Further, any
adjustments in the AIMCO Operating Partnership's tax returns will lead to
adjustments in OP Unitholders' tax returns and may lead to audits of their
returns and adjustments of items unrelated to the AIMCO Operating Partnership.
Each OP Unitholder would bear the cost of any expenses incurred in connection
with an examination of such OP Unitholder's personal tax return.
Partnerships generally are treated as separate entities for purposes of
federal tax audits, judicial review of administrative adjustments by the IRS and
tax settlement proceedings. The tax treatment of Partnership Tax Items generally
are determined at the partnership level in a unified partnership proceeding
rather than in separate proceedings with the partners. The Code provides for one
partner to be designated as the Tax Matters Partner for these purposes.
The Tax Matters Partner is authorized, but not required, to take certain
actions on behalf of the AIMCO Operating Partnership and OP Unitholders and can
extend the statute of limitations for assessment of tax deficiencies against OP
Unitholders with respect to the AIMCO Operating Partnership Tax Items. The Tax
Matters Partner may bind an OP Unitholder with less than a 1% profits interest
in the AIMCO Operating Partnership to a settlement with the IRS, unless such OP
Unitholder elects, by filing a statement with the IRS, not to give such
authority to the Tax Matters Partner. The Tax Matters Partner may seek judicial
review (to which all the OP Unitholders are bound) of a final partnership
administrative adjustment and, if the Tax Matters Partner fails to seek judicial
review, such review may be sought by any OP Unitholder having at least a 1%
interest in the profits of the AIMCO Operating Partnership or by OP Unitholders
having in the aggregate at least a 5% profits interest. However, only one action
for judicial review will go forward, and each OP Unitholder with an interest in
the outcome may participate.
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TAXATION OF FOREIGN OP UNITHOLDERS
A Non-U.S. Holder will be considered to be engaged in a United States trade
or business on account of its ownership of an OP Unit. As a result, a Non-U.S.
Holder will be required to file federal tax returns with respect to its
allocable share of the AIMCO Operating Partnership's income which is effectively
connected to its trade or business. A Non-U.S. Holder that is a corporation may
also be subject to United States branch profit tax at a rate of 30%, in addition
to regular federal income tax, on its allocable share of such income. Such a tax
may be reduced or eliminated by an income tax treaty between the United States
and the country with respect to which the Non-U.S. Holder is resident for tax
purposes. Non-U.S. Holders are advised to consult their tax advisors regarding
the effects an investment in the AIMCO Operating Partnership may have on
information return requirements and other United States and non-United States
tax matters, including the tax consequences of an investment in the AIMCO
Operating Partnership for the country or other jurisdiction of which such
Non-U.S. Holder is a citizen or in which such Non-U.S. Holder resides or is
otherwise located.
OTHER TAX CONSEQUENCES
POSSIBLE LEGISLATIVE OR OTHER ACTIONS AFFECTING REITS
The rules dealing with federal income taxation are constantly under review
by persons involved in the legislative process and by the IRS and the U.S.
Treasury Department. Changes to the federal laws and interpretations thereof
could adversely affect an investment in AIMCO or the AIMCO Operating
Partnership. For example, the Clinton Administration recently released a summary
of its proposed budget plan which contains several proposals affecting REITs and
partnerships. Such proposals would, among other things, prevent the
deductibility of interest incurred on certain debt funded directly or indirectly
by AIMCO and prevent an OP Unitholder from using all of its basis in OP Units to
offset cash received from the AIMCO Operating Partnership pursuant to a
redemption unless such OP Unitholder's entire interest in the AIMCO Operating
Partnership is redeemed. It cannot be predicted whether, when, in what forms, or
with what effective dates, the tax laws applicable to AIMCO or the AIMCO
Operating Partnership, or an investment in AIMCO or the AIMCO Operating
Partnership, will be changed.
STATE, LOCAL AND FOREIGN TAXES
The AIMCO Operating Partnership, OP Unitholders, AIMCO and AIMCO
stockholders may be subject to state, local or foreign taxation in various
jurisdictions, including those in which it or they transact business, own
property or reside. It should be noted that the AIMCO Operating Partnership owns
properties located in a number of states and local jurisdictions, and the AIMCO
Operating Partnership and OP Unitholders may be required to file income tax
returns in some or all of those jurisdictions. The state, local or foreign tax
treatment of the AIMCO Operating Partnership and OP Unitholders and of AIMCO and
its stockholders may not conform to the federal income tax consequences
discussed above. Consequently, prospective investors should consult their own
tax advisors regarding the application and effect of state, local foreign tax
laws on an investment in the AIMCO Operating Partnership or AIMCO.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any document we file at the
SEC's public reference rooms in Washington, D.C., New York, New York, and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information
on the public reference rooms. Our SEC filings are also available to the public
at the SEC's web site at http://www.sec.gov.
The SEC allows AIMCO to "incorporate by reference" the information AIMCO
files with them, which means that AIMCO can disclose important information to
you by referring you to those documents. The information incorporated by
reference is considered to be part of this prospectus, and later information
filed with the SEC will update and supersede this information. AIMCO
incorporates by reference the documents
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listed below and any of its future filings with the SEC under Section 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934 until our offering is
completed.
- Apartment Investment and Management Company's Annual Report on Form
10-K/A for the year ended December 31, 1997;
- Apartment Investment and Management Company's Quarterly Reports on
Form 10-Q/A and Form 10-Q for the quarters ended March 31, 1998, June
30, 1998 and September 30, 1998, respectively;
- Apartment Investment and Management Company's Current Reports on Form
8-K, dated December 23, 1997 (and Amendment No. 1 thereto filed
February 6, 1998 and Amendment No. 2 thereto filed May 22, 1998),
January 31, 1998, March 17, 1998 (and Amendment No. 1 thereto filed
April 3, 1998, Amendment No. 2 thereto filed June 22, 1998, Amendment
No. 3 thereto filed July 2, 1998, Amendment No. 4 thereto filed August
6, 1998, Amendment No. 5 thereto filed September 4, 1998 and Amendment
No. 6 thereto filed September 25, 1998), September 2, 1998, October 1,
1998, October 19, 1998, November 2, 1998 (and Amendment No. 1 thereto
filed November 24, 1998, Amendment No. 2 thereto filed December 12,
1998 and Amendment No. 3 thereto filed December 14, 1998, and
Amendment No. 4 thereto filed February 11, 1999), December 21, 1998
(as amended by Amendment No. 1 thereto filed February 11, 1999),
January 21, 1999, February 5, 1999, February 11, 1999, February 18,
1999 and February 26, 1999.
- the description of Apartment Investment and Management Company's
capital stock contained in its Registration Statement on Form 8-A
(File No. 1-13232) filed July 19, 1994, including any amendment or
reports filed for the purpose of updating such description; and
Although the AIMCO Operating Partnership has not been filing reports with
the SEC long enough to allow its reports to be incorporated herein by reference,
it does file such reports with the SEC. Additional information about the AIMCO
Operating Partnership may be found in the following documents filed with the
SEC:
- AIMCO Properties, L.P.'s Registration Statement on Form 10, filed
September 4, 1998 (and Amendment 1, filed October 16, 1998).
- AIMCO Properties, L.P.'s Quarterly Report on Form 10-Q for the quarter
ended September 30, 1998.
- AIMCO Properties, L.P.'s Current Report on Form 8-K dated November 2,
1998 (and Amendment No. 1 filed December 7, 1998 and Amendment No. 2
filed December 14, 1998), December 21, 1998 (as amended by Amendment
No. 1 filed February 11, 1999), and February 5, 1999.
You may request a copy of these filings, at no cost, by writing or calling
us at the following address and telephone number:
Corporate Secretary
Apartment Investment and Management Company
1873 South Bellaire Street, 17th Floor
Denver, Colorado 80222
(303) 757-8101
You should rely only on the information incorporated by reference or
provided in this prospectus or any prospectus supplement. We have not authorized
anyone to provide you with different information. We are not making an offer of
these securities in any state where the offer is not permitted. You should not
assume that the information in this prospectus or any prospectus supplement is
accurate as of any date other than the date on the front of the document.
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LEGAL MATTERS
Certain matters as to Maryland law and the validity of the Class A Common
Stock and the Preferred Stock will be passed upon for AIMCO by Piper & Marbury
L.L.P., Baltimore, Maryland. Certain matters as to the validity of the OP Units
will be passed upon for the AIMCO Operating Partnership by Skadden, Arps, Slate,
Meagher & Flom LLP.
EXPERTS
Ernst & Young LLP, independent auditors, have audited (i) AIMCO's
consolidated financial statements (and schedule) included in AIMCO's Annual
Report on Form 10-K/A for the year ended December 31, 1997; (ii) the
consolidated financial statements of the AIMCO Operating Partnership as of
December 31, 1997 and 1996 and for each of the three years in the period ended
December 31, 1997 included in the AIMCO Operating Partnership's Registration
Statement on Form 10; (iii) Ambassador's consolidated financial statements as of
December 31, 1997 and 1996 and for each of the three years in the period ended
December 31, 1997 included in AIMCO's Current Report on Form 8-K dated March 17,
1998 (as amended on April 3, 1998); (iv) Ambassador's consolidated financial
statements as of December 31, 1996 and 1995 and for each of the two years in the
period ended December 31, 1996 and the period from August 31, 1994 through
December 31, 1994 and the combined financial statements of Prime Properties
(Predecessor to Ambassador) for the period from January 1, 1994 through August
30, 1994 included in Amendment No. 1 to AIMCO's Current Report on Form 8-K dated
December 23, 1997 filed on February 6, 1998; (v) the consolidated financial
statements of Insignia Financial Group, Inc. as of December 31, 1997 and 1996
and for each of the three years in the period ended December 31, 1997 included
in AIMCO's Current Report on Form 8-K dated March 17, 1998 (and Amendment No. 1
thereto filed April 3, 1998); (vi) Cirque Apartment Communities combined
historical summary of gross income and direct operating expenses for the year
ended December 31, 1997 included in AIMCO's Current Report on Form 8-K dated
November 2, 1998; (vii) Sun Lake Apartments' historical summary of gross income
and direct operating expenses for the year ended December 31, 1997 included in
Amendment No. 3 to AIMCO's Current Report on Form 8-K dated November 2, 1998;
and (viii) Calhoun Beach Club Apartments' historical summary of gross income and
direct operating expenses for the year ended December 31, 1997 included in
AIMCO's Current Report on Form 8-K dated December 21, 1998; as set forth in
their reports, which are incorporated in this prospectus by reference. These
financial statements are incorporated by reference or included in this
prospectus in reliance on their reports, given on their authority as experts in
accounting and auditing.
The Combined Historical Summary of Gross Income and Direct Operating
Expenses of Realty Investment Apartment Communities I for the year ended
December 31, 1997 included in AIMCO's Current Report on Form 8-K dated November
2, 1998, have been audited by Beers & Cutler PLLC, independent auditors, as set
forth in their report thereon included therein and incorporated herein by
reference. The Combined Historical Summary of Gross Income and Direct Operating
Expenses of Realty Investment Apartment Communities II for the year ended
December 31, 1997 included in AIMCO's Current Report on Form 8-K dated November
2, 1998, have been audited by Beers & Cutler PLLC, independent auditors, as set
forth in their report thereon included therein and incorporated herein by
reference. Such financial statements are incorporated herein by reference in
reliance upon such reports given upon the authority of such firm as experts in
accounting and auditing.
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INDEX TO FINANCIAL STATEMENTS
OF
AIMCO PROPERTIES, L.P.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AUDITED FINANCIAL STATEMENTS:
Report of Independent Auditors............................ F-2
Consolidated Balance Sheets as of December 31, 1997 and
1996................................................... F-3
Consolidated Statements of Income for the Years ended
December 31, 1997, 1996
and 1995............................................... F-4
Consolidated Statements of Partners' Capital for the Years
ended December 31, 1997, 1996 and 1995................. F-5
Consolidated Statements of Cash Flow for the Years ended
December 31, 1997, 1996 and 1995....................... F-6
Notes to Consolidated Financial Statements................ F-9
INTERIM UNAUDITED FINANCIAL STATEMENTS:
Consolidated Balance Sheets as of September 30, 1998 and
December 31, 1997...................................... F-36
Consolidated Statements of Income for the Nine Months
ended September 30, 1998, and 1997..................... F-37
Consolidated Statements of Cash Flow for the Nine Months
ended September 30, 1998, and 1997..................... F-38
Notes to Consolidated Financial Statements................ F-42
</TABLE>
F-1
<PAGE> 472
REPORT OF INDEPENDENT AUDITORS
The Partners
AIMCO Properties, L.P.
We have audited the accompanying consolidated balance sheets of AIMCO
Properties, L.P. (the "Partnership") as of December 31, 1997 and 1996, and the
related consolidated statements of income, partners' capital and cash flows for
each of the three years in the period ended December 31, 1997. Our audits also
included the consolidated financial statement schedule listed in the Index at
Item 15(a)(ii). These financial statements and schedule are the responsibility
of the Partnership'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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
AIMCO Properties, L.P. at December 31, 1997 and 1996, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1997 in conformity with generally accepted accounting
principles. Also, in our opinion, the related consolidated 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
Dallas, Texas
March 6, 1998,
except for Note 21, as to which
the date is June 5, 1998
F-2
<PAGE> 473
AIMCO PROPERTIES, L.P.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1997 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
1997 1996
---------- --------
<S> <C> <C>
Real estate, net of accumulated depreciation of $153,285 and
$120,077 (see Note 3)..................................... $1,503,922 $745,145
Property held for sale...................................... 6,284 6,769
Investments in securities (see Note 4)...................... 22,144 --
Investments in and notes receivable from unconsolidated
subsidiaries (see Note 5)................................. 84,459 --
Investments in and note receivable from unconsolidated real
estate partnerships (see Note 6).......................... 212,150 --
Cash and cash equivalents................................... 37,088 13,170
Restricted cash............................................. 24,229 15,831
Accounts receivable......................................... 28,656 4,344
Deferred financing costs.................................... 12,793 11,053
Goodwill.................................................... 125,239 --
Other assets................................................ 43,546 31,361
---------- --------
Total assets...................................... $2,100,510 $827,673
========== ========
LIABILITIES AND PARTNERS' CAPITAL
Secured notes payable (see Note 7).......................... $ 681,421 $242,110
Secured tax-exempt bond financing (see Note 9).............. 74,010 75,497
Secured short-term financing (see Note 8)................... 53,099 192,039
Unsecured short-term financing (see Note 10)................ -- 12,500
---------- --------
Total indebtedness................................ 808,530 522,146
---------- --------
Accounts payable, accrued and other liabilities............. 88,170 16,299
Resident security deposits and prepaid rents................ 10,213 4,316
---------- --------
Total liabilities................................. 906,913 542,761
---------- --------
Commitments and contingencies (see Note 12)................. -- --
Minority interest (see Note 13)............................. 36,335 10,386
Redeemable Partnership Units (see Note 15).................. 197,086 96,064
Partners' capital (see Note 15)
General and Special Limited Partner....................... 825,597 178,462
Preferred Units........................................... 134,579 --
---------- --------
Total partners' capital........................... 960,176 178,462
---------- --------
Total liabilities and partners' capital........... $2,100,510 $827,673
========== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 474
AIMCO PROPERTIES, L.P.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS, EXCEPT PER UNIT DATA)
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
RENTAL PROPERTY OPERATIONS
Rental and other property revenues......................... $193,006 $100,516 $ 74,947
Property operating expenses................................ (76,168) (38,400) (30,150)
Owned property management expenses......................... (6,620) (2,746) (2,276)
Depreciation............................................... (37,741) (19,556) (15,038)
-------- -------- --------
Income from property operations............................ 72,477 39,814 27,483
SERVICE COMPANY BUSINESS
Management fees and other income........................... $ 13,937 $ 8,367 $ 8,132
Management and other expenses.............................. (9,910) (5,352) (4,953)
Partnership overhead allocation............................ (588) (590) (581)
Amortization of management company goodwill................ (948) (500) (428)
Depreciation and amortization.............................. (453) (218) (168)
-------- -------- --------
Income from service company business....................... 2,038 1,707 2,002
Minority interests in service company business............. (10) 10 (29)
-------- -------- --------
Partnership's share of income from service company
business................................................. 2,028 1,717 1,973
-------- -------- --------
General and administrative expenses........................ (5,396) (1,512) (1,804)
Interest expense........................................... (51,385) (24,802) (13,322)
Interest income............................................ 8,676 523 658
Minority interest.......................................... 1,008 (111) --
Equity in losses of unconsolidated partnerships............ (1,798) -- --
Equity in earnings of unconsolidated subsidiaries.......... 4,636 -- --
-------- -------- --------
Income from operations..................................... 30,246 15,629 14,988
Gain on disposition of properties.......................... 2,720 44 --
-------- -------- --------
Income before extraordinary item........................... 32,966 15,673 14,988
Extraordinary item -- early extinguishment of debt......... (269) -- --
-------- -------- --------
Net income................................................. 32,697 15,673 14,988
Net income attributable to Preferred Unitholders........... 2,315 -- 5,169
-------- -------- --------
Net income attributable to OP Unitholders.................. $ 30,382 $ 15,673 $ 9,819
======== ======== ========
Basic earnings per OP Unit................................. $ 1.09 $ 1.05 $ 0.86
======== ======== ========
Diluted earnings per OP Unit............................... $ 1.08 $ 1.04 $ 0.86
======== ======== ========
Weighted average OP Units outstanding...................... 27,732 14,978 11,453
======== ======== ========
Weighted average OP Units and OP Unit equivalents
outstanding.............................................. 28,113 14,994 11,461
======== ======== ========
Distributions paid per OP Unit............................. $ 1.85 $ 1.70 $ 1.66
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 475
AIMCO PROPERTIES, L.P.
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
GENERAL PARTNER
AND SPECIAL
LIMITED PREFERRED
PARTNER UNITS TOTAL
--------------- --------- ---------
<S> <C> <C> <C>
PARTNERS' CAPITAL AT JANUARY 1, 1995........................ $137,354 $ 107,228 $ 244,582
Contributions from AIMCO related to Class A common
offering.................................................. 46,874 -- 46,874
Repurchase of OP Units...................................... (10,628) -- (10,628)
OP Units redeemed to Special Limited Partner................ 18 -- 18
Redemption of mandatorily redeemable 1994 Cumulative
Convertible Senior Preferred Units........................ -- (107,228) (107,228)
Net income.................................................. 8,206 5,169 13,375
Distributions paid to Preferred Unit holders................ -- (5,169) (5,169)
Distributions paid to OP Unit holders....................... (15,757) -- (15,757)
Adjustment to reflect limited partners' equity at redemption
value..................................................... (5,120) -- (5,120)
-------- --------- ---------
PARTNERS' CAPITAL AT DECEMBER 31, 1995...................... 160,947 -- 160,947
Contributions from AIMCO related to Class A common
offering.................................................. 28,136 -- 28,136
Contributions from AIMCO related to options exercised....... 58 -- 58
Contribution from AIMCO related to stock purchased by
officers, net of notes receivable of $7,140............... 11,437 -- 11,437
Repurchase of OP Units...................................... (4,255) -- (4,255)
OP Units redeemed to Special Limited Partner................ 3,799 -- 3,799
Acquisition of real estate or interests in real estate
partnerships through issuance of OP Units................. 15,294 -- 15,294
Net income.................................................. 12,984 -- 12,984
Distributions paid to OP Unit holders....................... (20,736) -- (20,736)
Adjustment to reflect limited partners' equity at redemption
value..................................................... (29,202) -- (29,202)
-------- --------- ---------
PARTNERS' CAPITAL AT DECEMBER 31, 1996...................... 178,462 -- 178,462
Contributions from AIMCO related to Class A common
offering.................................................. 510,114 -- 510,114
Contributions from AIMCO related to Class B preferred
offering.................................................. -- 75,000 75,000
Contributions from AIMCO related to Class C preferred
offering.................................................. -- 58,110 58,110
Contribution from AIMCO related to stock purchased by
officers, net of notes receivable of $33,517.............. 1,198 -- 1,198
Contributions from AIMCO related to options and warrants
exercised, net of notes receivable of $9,045.............. (327) -- (327)
Acquisition of NHP through issuance of OP Units............. 180,851 -- 180,851
OP Units redeemed to Special Limited Partner................ 8,621 -- 8,621
Repayment of notes receivable from officers of AIMCO........ 14,540 -- 14,540
Net Income.................................................. 26,318 2,315 28,633
Distributions paid to OP Unit holders....................... (44,660) -- (44,660)
Distributions paid to Class B Preferred Unit holders........ -- (846) (846)
Adjustment to reflect limited partners' equity at redemption
value..................................................... (47,837) -- (47,837)
Unrealized loss on investments.............................. (1,683) -- (1,683)
-------- --------- ---------
PARTNERS' CAPITAL AT DECEMBER 31, 1997...................... $825,597 $ 134,579 $ 960,176
======== ========= =========
</TABLE>
See accompanying notes to consolidated financial statements
F-5
<PAGE> 476
AIMCO PROPERTIES, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
--------- -------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income................................................ $ 32,697 $ 15,673 $ 14,988
--------- -------- ---------
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................... 43,520 21,209 15,859
Gain on disposition of property......................... (2,720) (44) --
Minority interests...................................... (1,008) 111 --
Equity in losses of unconsolidated partnerships......... 1,798 -- --
Equity in earnings of unconsolidated subsidiaries....... (4,636) -- --
Extraordinary loss on early extinguishment of debt...... 269 -- --
(Increase) decrease in restricted cash.................. (7,421) 6,678 (6,072)
Increase in other operating assets, net................. (15,799) (4,785) (1,567)
Increase (decrease) in operating liabilities, net....... 26,332 (36) 2,703
--------- -------- ---------
Total adjustments................................... 44,399 25,822 12,536
--------- -------- ---------
Net cash provided by operating activities........... 73,032 38,806 25,911
--------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of real estate......................... 21,792 17,147 --
Purchase of real estate................................... (376,315) (26,032) (52,419)
Purchase of NHP common stock, notes receivable, general
and limited partnership interests and other assets...... (199,146) (53,878) --
Note receivable and investment in unconsolidated
subsidiary.............................................. (59,787) -- --
Advances to unconsolidated partnerships................... (42,879) -- --
Additions to property held for sale....................... (247) (5,718) --
Capital replacements...................................... (7,350) (5,133) (2,865)
Initial capital expenditures.............................. (9,108) (6,194) (4,879)
Construction in progress and capital enhancements......... (8,477) (7,629) (639)
Proceeds from sale of property held for sale.............. 303 -- --
Purchase of NHP mortgage loans............................ (60,575) -- --
Purchase of Ambassador common stock....................... (19,881) -- --
Distributions received from unconsolidated subsidiary..... 45,791 -- --
Purchase of office equipment and leasehold improvements... (1,784) (707) (19)
--------- -------- ---------
Net cash used investing activities.................. (717,663) (88,144) (60,821)
--------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of OP Units, net of underwriting
and offering costs...................................... 510,114 28,136 46,792
Principal repayments received on notes due from Officers
on OP Unit purchases.................................... 25,957 -- --
Proceeds from exercises of employee stock options and
warrants................................................ 871 -- --
Proceeds from issuance of Class B Preferred Units......... 75,000 -- --
Proceeds from issuance of Class C Preferred Units......... 58,110 -- --
Proceeds from secured tax-exempt bond financing........... -- 58,010 --
Proceeds from secured notes payable borrowings............ 225,436 -- 155,401
Principal paydowns on secured tax-exempt bond financing... (1,487) (48,703) --
Principal paydowns on secured notes payable............... (12,512) (28,463) (43,666)
Principal paydowns on unsecured short-term note payable... (79) -- --
Net borrowings (paydowns) on Credit Facility.............. (162,008) 40,800 (17,600)
Proceeds from secured short-term financing................ 19,050 30,119 25,000
Proceeds (payoff) from unsecured short-term financing..... (12,500) 12,500 --
Payment of loan costs, including proceeds and costs from
interest rate hedges.................................... (6,387) (3,464) (4,703)
Redemption of mandatorily redeemable 1994 Cumulative
Convertible Senior Preferred Units and repurchase of
unregistered OP Units................................... -- -- (107,228)
Payment of distribution on mandatorily redeemable 1994
Cumulative Convertible Senior Preferred Units........... -- -- (5,169)
Repurchase of OP Units.................................... -- (4,255) --
Payment of distributions to limited partners.............. (5,510) (3,815) 2,925)
Payment of distributions to OP Unitholders................ (44,660) (20,736) (15,757)
Payment of Class B Preferred Unit distributions........... (846) -- --
--------- -------- ---------
Net cash provided by financing activities........... 668,549 60,129 30,145
--------- -------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 23,918 10,791 (4,765)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR.............. 13,170 2,379 7,144
--------- -------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR.................... $ 37,088 $ 13,170 $ 2,379
========= ======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 477
AIMCO PROPERTIES, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOW
(IN THOUSANDS EXCEPT UNIT AND SHARE DATA)
SUPPLEMENTAL CASH FLOW INFORMATION:
<TABLE>
<CAPTION>
1997 1996 1995
-------- ------- -------
<S> <C> <C> <C>
Interest paid............................................... $ 51,076 $22,869 $12,170
</TABLE>
NON CASH INVESTING AND FINANCING ACTIVITIES
PURCHASE OF REAL ESTATE, CASH COLLATERAL AND PROPERTY MANAGEMENT BUSINESSES
<TABLE>
<CAPTION>
1997 1996 1995
-------- ------- -------
<S> <C> <C> <C>
Secured notes payable assumed in connection with purchase of
real estate............................................... $140,451 $31,796 $ 8,242
Secured short-term financing assumed in connection with
purchase of real estate................................... 9,600 5,072 --
Real estate, restricted cash, cash collateral and property
management businesses contributed in exchange for
Partnership Units ("OP Units")............................ 55,906 15,279 2,626
OP Units issued in consideration for purchase of real
estate.................................................... -- 15,294 --
-------- ------- -------
$205,957 $67,441 $10,868
======== ======= =======
</TABLE>
PURCHASE OF NHP REAL ESTATE COMPANIES
In 1997, the Partnership, individually and through Apartment Investment and
Management Company ("AIMCO"), the General Partner and Special Limited Partner of
the Partnership, acquired NHP Partners, Inc., NHP Partners Two Limited Partners
and their subsidiaries (collectively, the "NHP Real Estate Companies") and all
of the common stock of NHP Incorporated ("NHP") in exchange for 6,759,148 shares
of AIMCO Class A Common Stock ("Class A Common Shares") with a recorded value of
$180.9 million, $141.3 million in cash and warrants to purchase 399,999 Class A
Common Shares in a series of related transactions (see Notes 5 and 6).
The aggregate purchase price consisted of the following:
<TABLE>
<S> <C>
Assets purchased............................................ $638,944
Liabilities assumed......................................... 312,555
Cash paid................................................... 141,328
OP Units issued............................................. 180,851
Options issued.............................................. 4,210
</TABLE>
PURCHASE OF ENGLISH PORTFOLIO
In 1996, the Partnership issued 789,039 OP Units with a recorded value of
$16,877 and assumed $1,051 in secured short-term financing in connection with
the purchase of certain partnership interests, real estate and related assets
(the "English Portfolio") owned by J.W. English and certain affiliated entities.
The aggregate purchase price consisted of the following:
<TABLE>
<S> <C>
Assets purchased............................................ $218,268
Liabilities assumed......................................... 172,154
Cash paid................................................... 29,237
OP Units issued............................................. 16,877
</TABLE>
F-7
<PAGE> 478
AIMCO PROPERTIES, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOW -- (CONTINUED)
(IN THOUSANDS EXCEPT UNIT AND SHARE DATA)
REPAYMENT OF SECURED NOTE PAYABLE
In 1996, 63,152 OP Units with a recorded value of $1,168 were issued in
connection with the repayment of the second deed of trust on a property
purchased in 1996.
RECEIPT OF NOTES RECEIVABLE DUE FROM OFFICERS
In 1997, AIMCO received promissory notes from officers of AIMCO for a total
of $42.6 million in connection with the sale of 1,462,735 Class A Common Shares
(of which $14,664 was repaid in 1997 and an additional $5.7 million was repaid
in February and March 1998). The notes receivable were contributed by AIMCO to
the Partnership in exchange for 1,462,735 OP Units.
In 1996, AIMCO received promissory notes due from officers of AIMCO for a
total of $18,557 in connection with the sale of 895,250 Class A Common Shares
(of which $11,440 was repaid in March 1997). The notes receivable were
contributed by AIMCO to the Partnership in exchange for 895,250 OP Units.
OTHER
In 1997, the Partnership issued an additional 216,564 OP Units with a
recorded value of $7,469 in connection with the purchase of certain partnership
interests.
F-8
<PAGE> 479
AIMCO PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996, AND 1995
NOTE 1 -- ORGANIZATION
AIMCO Properties, L.P. (together with its subsidiaries and other controlled
entities, the "Partnership" (and together with entities in which the Partnership
has a controlling financial interest, the "Company")), a Delaware limited
partnership, was formed on May 16, 1994 to conduct the business of acquiring,
developing, leasing, and managing multi-family apartment communities. Apartment
and Investment Management Company ("AIMCO") is the General Partner and Special
Limited Partner, as defined in the Second Amended and Restated Agreement of
Limited Partnership of AIMCO Properties, L.P. (the "Agreement"), of the
Partnership. In addition, AIMCO is the holder of all Partnership Preferred Units
("Preferred Units") outstanding in the Partnership. The Limited Partners of the
Partnership are individuals or entities that own limited partnership units in
the Partnership ("OP Units") other than AIMCO. After holding the OP Units for
one year, the Limited Partners have the right to redeem their OP Units for cash,
subject to the prior right of AIMCO to elect to acquire some or all of the OP
units tendered for redemption for cash or in exchange for shares of Class A
Common Stock, on a one-for-one ratio.
The Partnership, through its operating divisions and subsidiaries, was
formed to hold and conduct substantially all of AIMCO's operations and manages
the daily operations of AIMCO's business and assets. All employees of the
Company are employees of the Partnership; AIMCO has no employees.
According to the terms of the Agreement, the capital structure of the
Partnership, in terms of the OP units owned by the General Partner, the Special
Limited Partner and the Preferred Units outstanding, is required to mirror the
capital structure of AIMCO, with the only difference being the Partnership has
additional OP Units outstanding which are owned by the Limited Partners.
Therefore, AIMCO is required to contribute to the Partnership all proceeds from
offerings of its Class A Common Stock, preferred stock, or any other equity
offerings. In addition, substantially all of AIMCO's assets must be owned
through the Partnership; therefore, AIMCO is generally required to contribute to
the Partnership all assets acquired. In exchange for the contribution of
offering proceeds or assets, AIMCO receives additional interests in the
Partnership with similar terms (i.e., if AIMCO contributes proceeds of a
preferred stock offering, AIMCO receives Preferred Units).
AIMCO frequently consummates transactions for the benefit of the
Partnership. For legal, tax or other business reasons, AIMCO may hold title or
ownership of certain assets until they can be transferred to the Partnership.
However, the Partnership has a controlling financial interest in all of AIMCO's
assets in the process of transfer to the Partnership.
In December 1997, AIMCO acquired all of the outstanding stock of NHP in a
purchase transaction. Subsequent to completion of the transaction, AIMCO
contributed substantially all the assets and liabilities of NHP to the
Partnership in exchange for OP Units. NHP provided a broad array of real estate
services nationwide, including property management and asset management. As of
December 31, 1997, substantially all of the Partnership's property and asset
management business is conducted through PAMS, Inc., PAMS, LP and unconsolidated
subsidiaries of the Partnership.
At December 31, 1997, the Partnership had 45,802,097 OP Units outstanding,
750,000 Class B Preferred Units outstanding and 2,400,000 Class C Preferred
Units outstanding.
At December 31, 1997, the Partnership owned or controlled 40,039 units in
147 apartment properties (the "Owned Properties"), held an equity interest in
83,431 units in 515 apartment properties (the "Equity Properties") and managed
69,587 units in 374 apartment properties for third party owners and affiliates
(the "Managed Properties" and, together with the Owned Properties and Equity
Properties, the "AIMCO Properties"), bringing the total managed portfolio to
193,057 units in 1,036 apartment properties. The AIMCO Properties are located in
42 states, the District of Columbia and Puerto Rico.
F-9
<PAGE> 480
AIMCO PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2 -- BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Partnership and subsidiaries and limited partnerships in which the
Partnership has a controlling financial interest. Pursuant to a Management and
Contribution Agreement between the Partnership and AIMCO, the Partnership has
acquired, in exchange for interests in the Partnership, the economic benefits of
subsidiaries of AIMCO in which the Partnership does not have an interest, and
AIMCO has granted the Partnership a right of first refusal to acquire such
subsidiaries' assets for no additional consideration. Pursuant to the agreement,
AIMCO has also granted the Partnership certain rights with respect to assets of
such subsidiaries. Interests held by limited partners in real estate
partnerships controlled by the Partnership are reflected as Minority Interests
in Other Partnerships.
All significant intercompany balances and transactions have been eliminated
in consolidation.
Investments in Unconsolidated Subsidiaries
The Partnership has investments in numerous subsidiaries. Investments in
entities in which the Partnership does not have control, are accounted for under
the equity method. Under the equity method, the Partnership's pro-rata share of
the earnings or losses of the entity for the periods being presented is included
in earnings (losses) from unconsolidated subsidiaries (see Note 5).
Investments in and Notes Receivable from Real Estate Partnerships
The Company owns general and limited partnership interests in numerous
partnerships that own multi-family apartment properties. Investments in real
estate partnerships in which the Company does not have control, are accounted
for under the equity method. Under the equity method, the Company's pro-rata
share of the earnings or losses of the entity for the periods being presented is
included in earnings (losses) from unconsolidated partnerships (see Note 6).
Real Estate and Depreciation
Real estate is recorded at cost, less accumulated depreciation, unless
considered impaired. If events or circumstances indicate that the carrying
amount of a property may be impaired, the Partnership will make an assessment of
its recoverability by estimating the future undiscounted cash flows, excluding
interest charges, of the property. If the carrying amount exceeds the aggregate
future cash flows, the Partnership would recognize an impairment loss to the
extent the carrying amount exceeds the fair value of the property. As of
December 31, 1997, management believes that no impairments exist based on
periodic reviews. No impairment losses were recognized for the years ended
December 31, 1997, 1996 and 1995.
Expenditures that maintain an existing asset which has a useful life of
more than one year are capitalized as capital replacement expenditures and
depreciated over the estimated useful life of the asset.
Depreciation is calculated on the straight-line method based on a fifteen
to thirty year life for buildings and improvements and five years for furniture,
fixtures and equipment.
Initial capital expenditures are those costs considered necessary by the
Partnership in its investment decision to correct deferred maintenance or
improve a property. Capital enhancements are costs incurred that add a material
new feature or increase the revenue potential of a property. Initial capital
expenditures and capital enhancement costs are capitalized and depreciated over
the estimated useful lives of the related assets.
F-10
<PAGE> 481
AIMCO PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Partnership capitalizes direct and indirect costs (including interest,
taxes and other costs) in connection with the development or redevelopment of
its Owned Properties and land under development. Direct costs associated with
the acquisition of Owned Properties are capitalized as a cost of the assets
acquired, and are depreciated over the estimated useful lives of the related
assets.
Expenditures for ordinary repairs, maintenance and apartment turnover costs
are expensed as incurred.
Property Held for Sale
Property held for sale is recorded at the lower of cost, less accumulated
depreciation, or estimated sales proceeds less selling costs. Upon management's
determination that a property is to be sold, the Partnership ceases deprecation
of the property's assets.
Cash Equivalents
The Partnership considers highly liquid investments with an original
maturity of three months or less to be cash equivalents.
Restricted Cash
Restricted cash includes capital replacement reserves, completion repair
reserves, bond sinking fund amounts, and tax and insurance impound accounts held
by lenders.
Goodwill
The Partnership records goodwill in connection with purchase business
combinations where the aggregate purchase price exceeds the fair value of the
assets acquired. Goodwill is amortized on a straight-line basis over a period of
20 years, which represents its useful life.
Deferred Financing Costs
Fees and costs incurred in obtaining financing are capitalized. Such costs
are amortized over the terms of the related loan agreements and are charged to
interest expense.
Other Assets
Intangible assets are included in other assets and consist of costs
associated with the purchase of property management businesses, including
property management contracts, legal and other acquisition costs. These costs
are amortized on a straight-line basis over terms ranging from five to twenty
years.
Compensated Absences
The Partnership employees earn vacation time ratably throughout the
calendar year. The rate at which vacation time is earned is based primarily on
an employee's length of service. An employee may accrue up to the maximum number
of hours for which he/she is eligible to take in any one calendar year. The
Partnership's policy is to compensate employees for all vacation time earned,
but not taken, upon the employee's termination. As of December 31, 1997, the
Partnership has not accrued vacation pay earned, but not yet taken by its
employees. Management does not believe that the accrual of earned vacation
compensation would have a material effect on the consolidated financial
statements.
Redeemable Partnership Units
The Partnership accounts for the outstanding common units not held by AIMCO
as redeemable partnership units. These units are classified outside of permanent
partners' capital in the accompanying
F-11
<PAGE> 482
AIMCO PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
balance sheet. The units are initially recorded at their fair value and
subsequently adjusted based on the fair value at the balance sheet date as
measured by the closing price of AIMCO's common stock on that date by the total
number of units outstanding (see Note 15).
Revenue Recognition
The AIMCO Properties have operating leases with apartment residents with
terms generally of six months or less. Rental revenues and property management
and asset management fees are recognized when earned.
Interest Rate Lock Agreements
Interest rate lock agreements related to planned refinancings of identified
variable rate indebtedness are accounted for as anticipatory hedges. Upon the
refinancing of such indebtedness, any gain or loss associated with the
termination of the interest rate lock agreement is deferred and recognized over
the life of the refinanced indebtedness (see Note 11). In order for the interest
rate lock to qualify as an anticipatory hedge, the following criteria must be
met: (a) the refinance being hedged exposes the Partnership to interest rate
risk; (b) the interest rate lock is designated as a hedge; (c) the significant
characteristics and expected terms of the refinance are identified; and (d) it
is probable that the refinance will occur. The Partnership believes that all
four of the above qualifications have been met. In the event that any of the
above qualifications are not met, the interest rate lock will not qualify as an
anticipatory hedge, and the gain or loss on the interest rate lock will be
recognized in the current period's earnings.
Income Taxes
Income or losses of the Partnership are allocated to the partners of the
Partnership for inclusion in their respective income tax returns. Accordingly,
no provision or benefit for income taxes has been made in the accompanying
financial statements. AIMCO has elected to be taxed as a real estate investment
trust ("REIT") as defined under the Internal Revenue Code of 1986, as amended
(the "Code"). In order for AIMCO to qualify as a REIT, at least 95% of AIMCO's
gross income in any year must be derived from qualifying sources. The activities
of PAMS, Inc., PAMS, LP and other unconsolidated subsidiaries engaged in the
service company business are not qualifying sources.
As a REIT, AIMCO generally will not be subject to U.S. federal income taxes
at the corporate level if it distributes at least 95% of its REIT taxable income
to its shareholders. REITs are also subject to a number of other organizational
and operational requirements. If AIMCO fails to qualify as a REIT in any taxable
year, its taxable income will be subject to U.S. federal income tax at regular
corporate rates (including any applicable alternative minimum tax). Even if
AIMCO qualifies as a REIT, it may be subject to certain state and local income
taxes and to U.S. federal income and excise taxes on its undistributed income.
For income tax purposes, distributions paid to holders of OP Units consist
of ordinary income, capital gains, return of capital or a combination thereof.
Earnings and profits, which determine the taxability of distributions to
shareholders, differ from net income reported for financial reporting purposes
due to differences for U.S. federal tax purposes in the estimated useful lives
used to compute depreciation and the carrying value (basis) of the investments
in the Owned Properties.
F-12
<PAGE> 483
AIMCO PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
For the years ended December 31, 1997, 1996 and 1995, distributions paid
per OP Unit were taxable as follows:
<TABLE>
<CAPTION>
1997 % 1996 % 1995 %
----- --- ----- --- ----- ---
<S> <C> <C> <C> <C> <C> <C>
Ordinary income........................ $1.74 94% $1.45 85% $1.48 89%
Return of capital...................... -- -- 0.25 15% 0.18 11%
Capital gains.......................... 0.04 2% -- -- -- --
Depreciation recapture................. 0.07 4% -- -- -- --
----- --- ----- --- ----- ---
$1.85 100% $1.70 100% $1.66 100%
===== === ===== === ===== ===
</TABLE>
Earnings Per OP Unit
Earnings per OP Unit is calculated based on the weighted average number of
OP Units, OP Unit equivalents and dilutive convertible securities outstanding
during the period. Diluted earnings per OP Unit is based upon the weighted
average number of OP Units outstanding during the period and includes the effect
of potential issuance of additional OP Units if stock options and warrants were
exercised or converted into common stock of AIMCO (see Note 17).
Fair Value of Financial Instruments
The estimated aggregate fair value of the Partnership's cash and cash
equivalents, receivables, payables and short-term secured and unsecured
financing as of December 31, 1997 is assumed to approximate their carrying value
due to their relatively short terms. Management further believes that, after
consideration of interest rate agreements, the fair market value of the
Partnership's secured tax-exempt bond financing and secured long-term financing
approximates their carrying value, based on market comparisons to similar types
of debt instruments having similar maturities.
In valuing its investments in securities at their quoted market price, the
Partnership has recognized unrealized losses on investments of $1.7 million as
of December 31, 1997, which are included as a component of partners' capital.
Insurance Subsidiary
Reinsurance premiums written are earned on a monthly pro rata basis over
the terms of the policies. A reserve for outstanding losses and loss-related
expenses of $14.8 million has been provided at December 31, 1997. The reserve
includes estimates for insurance losses incurred but not reported, as well as
losses pending settlement. Reserves are based on Management's estimates and are
believed to be adequate.
Use of Estimates
The preparation of the Partnership's consolidated financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts included in the
financial statements and accompanying notes thereto. Actual results could differ
from those estimates.
F-13
<PAGE> 484
AIMCO PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3 -- REAL ESTATE
Real estate at December 31 is as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
---------- ---------
<S> <C> <C>
Land........................................................ $ 265,570 $ 118,031
Buildings and improvements.................................. 1,391,637 747,191
---------- ---------
1,657,207 865,222
Accumulated depreciation.................................... (153,285) (120,077)
---------- ---------
$1,503,922 $ 745,145
========== =========
</TABLE>
During the years ended December 31, 1997 and 1996, the Company purchased or
acquired control of 59 properties (17,191 units) and 42 properties (10,484
units), respectively, and disposed of five properties (916 units) and four
properties (1,265 units), respectively, as described below.
The Partnership directly acquired nine apartment communities in unrelated
transactions during 1997 (the "1997 Acquisitions"). The aggregate consideration
paid by the Partnership of $204.3 million consisted of $75.4 million in cash,
1.9 million OP Units with a total recorded value of $55.9 million and the
assumption of $73.0 million of secured long-term indebtedness.
As a result of acquisition of the NHP Real Estate Companies (see Note 6)
and related tender offers to limited partners, the Company acquired a
controlling interest in 15 partnerships (the "Controlled NHP Partnerships"),
which own 5,285 units located in 15 apartment communities. The portion of the
aggregate purchase price for the NHP Real Estate Companies allocated to the
Controlled NHP Partnerships was approximately $269.3 million, including the
assumption of approximately $212.3 million of mortgage indebtedness.
In October 1997, the Partnership acquired a portfolio of 35 residential
apartment properties (the "Winthrop Portfolio"). The aggregate purchase price of
$263.0 million, including transaction costs, was comprised of $115.6 million in
cash, the assumption of $8.3 million in mortgage indebtedness and the creation
of $139.1 million of new indebtedness secured by the properties. The Partnership
has also budgeted an additional $16.0 million in initial capital expenditures
related to the Winthrop Portfolio.
During 1997, the Partnership sold five apartment properties containing 916
units to an unaffiliated third party (the "1997 Dispositions"). Cash proceeds
from the sale of approximately $22.7 million were used to repay a portion of the
Partnership outstanding indebtedness. The Partnership recognized a gain of
approximately $2.8 million on the disposition on these five properties.
The Partnership acquired 100% ownership in seven apartment properties in
unrelated transactions in 1996 (the "1996 Acquisitions"). The aggregate
consideration paid by the Partnership of $93.1 million consisted of $26.0
million in cash, 1,449,403 in OP Units with a total recorded value of $30.3
million and the assumption of $31.7 million of secured long-term indebtedness
and $5.1 million of secured short-term indebtedness. Each transaction, with the
exception of Peachtree Park and Somerset Village (see Note 19), was with an
unaffiliated third party.
In November 1996, the Partnership completed the acquisition (the "English
Portfolio Acquisition") of certain partnership interests, real estate and
related assets owned by J.W. English, a Houston, Texas-based real estate
syndicator and developer, and certain affiliated entities (collectively, the
"J.W. English Companies"). The English Portfolio Acquisition included the
purchase of all of the general and some of the limited partnership interests in
22 limited partnerships which act as the general partner to 31 limited
partnerships (the "English Partnerships") that own 22 multi-family apartment
properties, aggregating 5,230 apartment units, and four commercial properties,
primarily in Houston, Texas; title to a 104-unit apartment property in
F-14
<PAGE> 485
AIMCO PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Houston, Texas; certain assets of J. W. English Management Company which
provided management services to the apartment properties; and other real estate
interests related to the J.W. English Companies' operations. The aggregate
purchase price of the English Portfolio Acquisition was $23.1 million,
consisting of $15.2 million in OP Units and $7.9 million in cash. The English
Partnerships are subject to approximately $95.4 million of mortgage debt.
The Partnership also made separate offers (the "English Tender Offers") to
the limited partners of 25 of the English Partnerships (the "Tender Offer
English Partnerships") to acquire their limited partnerships interests. The
various limited partners accepted tenders representing, in the aggregate,
approximately 46% of all outstanding limited partnership interests in the Tender
Offer English Partnerships. The Partnership paid $16.0 million in cash and $1.7
million in OP Units for the interests tendered in the English Tender Offers. The
remaining limited partners elected to continue as limited partners in the Tender
Offer English Partnerships.
In a series of related transactions completed in November and December
1996, the Partnership acquired general partnership interests in 21 limited
partnerships which own twelve multi-family apartment properties (collectively,
the "Dallas Acquisition Properties") aggregating 2,839 apartment units,
primarily in the Dallas, Texas metropolitan area, and loans made by the general
partners and their affiliates to such partnerships, for an aggregate price of
$26.7 million in cash (collectively, the "Dallas Portfolio Acquisition"). The
Dallas Acquisition Properties are subject to approximately $60.7 million of
mortgage debt. The existing limited partners retained their interest in such
limited partnerships.
During 1996, the Partnership disposed of four properties (the "1996
Dispositions"). The properties were sold to one unaffiliated third party. The
cash proceeds from the disposition of approximately $17.1 million were used to
pay down $9.2 million of the Partnership's outstanding indebtedness and to
provide funds available for future investment purposes. The Partnership
recognized a total gain of approximately $44,000 on the disposition of these
four properties.
In the fourth quarter of 1996, the Partnership completed construction of a
92 apartment unit expansion within the Fairways Apartments in Phoenix, Arizona
for a cost of approximately $6.0 million.
In 1996, the Partnership acquired Sun Katcher Apartments, a 360-unit
apartment property located in Jacksonville, Florida, at a cost of $4.0 million.
In 1997, the redevelopment of Sun Katcher was completed at a cost of $4.9
million. The Partnership also recently commenced the renovation and upgrading of
Bay West Apartments, a 376-unit apartment property located in Tampa, Florida,
for a projected cost of $4.8 million (of which $0.9 million has already been
spent), to reposition the property in the marketplace. In addition, the
Partnership expects to undertake a major renovation of the Morton Towers
Apartments, a 1,277-unit apartment property located in Miami Beach, Florida, at
an estimated cost of $35.0 million. Approximately $0.4 million has been spent on
the Morton Towers redevelopment as of December 31, 1997.
Interest of $1.3 million, $0.8 million and $0.1 million was capitalized for
the years ended December 31, 1997, 1996 and 1995, respectively.
NOTE 4 -- INVESTMENT IN AMBASSADOR APARTMENTS, INC.
In September 1997, the Partnership acquired 886,600 shares of common stock
("Ambassador Common Stock") of Ambassador Apartments, Inc. ("Ambassador"), a
publicly traded REIT, for $19.9 million in cash. The shares acquired represented
8.4% of the shares of Ambassador Common Stock outstanding as of the date of the
purchase. As of December 31, 1997, the fair market value of the Ambassador stock
is $18.2 million. Accordingly, the Partnership has recognized an unrealized loss
on the Ambassador investment of $1.7 million, which is included as a component
of partners' capital.
On December 23, 1997, AIMCO and Ambassador entered into an Agreement and
Plan of Merger (the "Ambassador Merger Agreement") pursuant to which Ambassador
will be merged with and into AIMCO,
F-15
<PAGE> 486
AIMCO PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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., a Delaware limited partnership (the
"Ambassador Operating Partnership"), will be merged with and into the
Partnership (the "Ambassador Reorganization") and all outstanding Ambassador
Operating Partnership interests will be converted into OP Units at the
Conversion Ratio, as defined below. Ambassador conducts substantially all of its
operations through the Ambassador Operating Partnership and its subsidiaries. In
the Ambassador Merger Agreement, the Ambassador Common Stock is valued at $21
per share. Holders of Ambassador Common Stock will receive for each share an
amount of Class A Common Stock equal to the Conversion Ratio. The "Conversion
Ratio" means the quotient determined by dividing $21 by the "AIMCO Index Price,"
which is the aggregate of the average of the high and low sales prices for Class
A Common Stock on each of the twenty consecutive 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 the 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 in value for each share of Ambassador Common Stock.
The Ambassador Merger Agreement provides that any outstanding options to
purchase Ambassador Common Stock may be converted, at the election of the option
holder, into cash or options to purchase Class A Common Stock at the Conversion
Ratio. The Ambassador Merger Agreement further states that Ambassador's
outstanding preferred stock, par value $0.01 per share (the "Ambassador
Preferred Stock"), shall be redeemed, subject to the right of holders of shares
of Ambassador Preferred Stock to convert such shares into Ambassador Common
Stock, immediately prior to the Ambassador Merger.
Ambassador is a self-administered and self-managed REIT engaged in the
ownership and management of garden-style apartment properties leased primarily
to middle income tenants. As of December 31, 1997, Ambassador owned 52 apartment
communities with a total of 15,728 units located in Arizona, Colorado, Florida,
Georgia, Illinois, Tennessee and Texas. In addition, Ambassador manages one
property containing 252 units for an unrelated third party. Ambassador conducts
substantially all of its operations through the Ambassador Operating Partnership
and its subsidiaries. As of December 31, 1997, Ambassador held approximately 94%
of the outstanding common units and 100% of the outstanding preferred units of
the Ambassador Operating Partnership.
The closing of the Ambassador Merger occurred during the second quarter of
1998 (see Note 22).
NOTE 5 -- INVESTMENTS IN AND NOTES RECEIVABLE FROM UNCONSOLIDATED SUBSIDIARIES
In order to satisfy certain requirements of the Internal Revenue Code (the
"Code") applicable to AIMCO's status as a REIT, certain assets of the Company
are held through corporations (the "Unconsolidated Subsidiaries") in which the
Partnership holds non-voting preferred stock that represents a 95% economic
interest, and certain officers and/or directors of AIMCO hold, directly or
indirectly, all of the voting common stock, representing a 5% economic interest.
As a result of the controlling ownership interest in the Unconsolidated
Subsidiaries held by others, the Partnership accounts for its interest in the
Unconsolidated Subsidiaries on the equity method. As of December 31, 1997, the
Unconsolidated Subsidiaries included AIMCO/NHP Holdings, Inc. ("ANHI"),
AIMCO/NHP Properties, Inc. ("ANPI"), NHP Property Management Company ("NHPMC"),
and NHP A&R Services, Inc. ("NHPA&R").
In May and September of 1997, AIMCO acquired an aggregate of 6,930,122
shares of common stock ("NHP Common Stock") of NHP. On December 8, 1997, AIMCO
acquired the remaining shares of NHP Common Stock in a merger transaction
accounted for as a purchase (the "NHP Merger"). Pursuant to the NHP Merger, each
outstanding share of NHP Common Stock was converted into either (i) 0.74766
shares of Class A Common Stock or (ii) at the shareholder's option, 0.37383
shares of Class A Common Stock and
F-16
<PAGE> 487
AIMCO PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$10.00 in cash. As a result of the NHP Merger, AIMCO issued 6,759,148 shares of
Class A Common Stock, valued at $180.8 million, and paid $86.5 million in cash.
The total cost of the purchase was $349.5 million. Subsequent to the NHP Merger,
AIMCO contributed substantially all the assets and liabilities of NHP to the
Partnership in exchange for OP Units.
In connection with the NHP Merger, the Partnership recorded approximately
$125 million in goodwill, which is being amortized using the straight line
method over a period of 20 years.
In addition, in connection with the NHP Merger, the Partnership executed a
plan to close NHP's headquarters in Vienna, Virginia. Concurrent with this plan,
certain employees of NHP were either terminated or relocated to the
Indianapolis, Indiana office. The Partnership incurred $2.7 million in severance
and relocation costs, which were capitalized as a cost of the acquisition.
In connection with the purchase of NHP, the Partnership acquired NHP's
property management business, as well as several other businesses, including a
membership purchasing organization, home health care services, and insurance
services. Immediately following the purchase, the Partnership completed a
reorganization which resulted in those businesses being conducted by ANHI, ANPI,
NHPMC and NHPA&R.
As of December 31, 1997, the Partnership's investment in the Unconsolidated
Subsidiaries totaled $84.5 million, which consisted of $50.0 million in notes
receivable from, and $34.5 million in preferred stock of, the Unconsolidated
Subsidiaries.
See selected combined financial information for the Partnership's
Unconsolidated Subsidiaries and unconsolidated partnerships at Note 6.
NOTE 6 -- INVESTMENT IN AND NOTES RECEIVABLE FROM UNCONSOLIDATED REAL ESTATE
PARTNERSHIPS
In connection with the purchase of the NHP Real Estate Companies, the
Company acquired general and limited partnership interests in partnerships that
own 82,374 conventional and affordable apartment units in 519 apartment
properties. The Company's ownership interests in these partnerships ranges from
1% to 100%, and the provisions of the partnership agreements give the Company
varying degrees of control.
Subsequent to the acquisition of the NHP Real Estate Companies, the Company
contributed interests in certain of the limited partnerships which they
controlled to AIMCO/NHP Partners, L.P. ("ANPLP"), a partnership in which the
Partnership owns a 99% limited partnership interest. A limited liability company
owned by certain directors and officers of AIMCO is the 1% general partner of
ANPLP. Based on the provisions of the partnership agreement for ANPLP, the
Partnership does not possess control of the partnership.
At December 31, 1997, Company's investment in unconsolidated partnerships
totaled $212.1 million.
F-17
<PAGE> 488
AIMCO PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table provides selected combined financial information for
both the Company's Unconsolidated Subsidiaries and unconsolidated partnerships
as of and for the year ended December 31, 1997 (in thousands):
<TABLE>
<S> <C>
Real estate, net of accumulated depreciation................ $2,252,702
Management contracts........................................ 51,441
Goodwill.................................................... 45,494
Total assets................................................ 2,827,264
Secured notes payable....................................... 2,951,989
Stockholders' and partners' equity.......................... (767,201)
Total liabilities and stockholders' and partners' equity.... $2,827,264
Rental and other property revenues.......................... $ 501,384
Property operating expenses................................. (303,547)
Depreciation expense........................................ (63,384)
Service company revenues.................................... 23,776
Service company expenses.................................... (11,733)
Interest expense............................................ 156,929
Net loss before gain on disposition of properties and
discontinued operations................................... (7,589)
Net income.................................................. $ 11,536
</TABLE>
NOTE 7 -- SECURED NOTES PAYABLE
In April 1997, 23 partnerships controlled by the Partnership completed a
$108.0 million refinancing of secured, short term, floating rate indebtedness
with secured, 20-year, fixed rate, fully amortizing debt. The new notes are
secured by 27 apartment properties owned by such partnerships. In connection
with this refinancing, the Partnership received proceeds of $3.4 million from
two interest rate lock agreements accounted for as hedges (see Note 11). The
gain on the interest rate lock agreements was deferred and will be amortized
over the life of the debt.
During 1997, the Partnership assumed $220.4 million in mortgage
indebtedness in connection with the purchase of 39 apartment properties. In
addition, in connection with the acquisition of the NHP Real Estate Companies
(see Note 6), the Partnership assumed fixed-rate indebtedness totaling
approximately $209.8 million, which is secured by 15 properties held by NHP
Partnerships in which the Partnership acquired controlling interests.
In December 1997, the Partnership refinanced certain notes payable secured
by 27 properties, of which, five are Owned Properties and are consolidated. The
new notes have an aggregate outstanding principal balance of $91.5 million as of
December 31, 1997 and carry fixed interest rates ranging from 6.6% to 6.8%. The
new notes are fully amortizing, requiring monthly principal and interest
payments, and mature in December 2012. In anticipation of the refinancing, the
Partnership entered into an interest rate lock agreement with an investment
banking company ("the March Hedge"). The March Hedge had a notional value of
$100.0 million and fixed the interest rate of the anticipated refinancing at
7.053%. The March Hedge was settled in connection with the refinancing, at which
time the Partnership realized a loss on the hedge of approximately $10.9
million. The loss on the hedge will be amortized over the life of the refinanced
debt (see Note 11).
F-18
<PAGE> 489
AIMCO PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes the Partnership's long-term secured notes
payable at December 31, 1997 and 1996, all of which are non-recourse to the
Partnership (in thousands):
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Fixed rate, ranging from 5.0% to 10.1%, or a weighted
average all-in rate of 8.10%, fully-amortizing notes
maturing at various dates through 2029.................... $561,056 $165,762
Fixed rate, ranging from 7.25% to 9.5%, or a weighted
average all-in rate of 8.73%, non-amortizing notes
maturing at various dates through 2001.................... 106,424 57,198
Floating rate, ranging from 6.7% to 7.4% at December 31,
1997, or a weighted average all-in rate of 7.7%,
non-amortizing notes maturing at various dates through
2005...................................................... 13,941 19,150
-------- --------
$681,421 $242,110
======== ========
</TABLE>
Real estate assets which secure the first trust deeds for these secured
notes payable had a net book value of $1,117.6 million at December 31, 1997.
As of December 31, 1997, the scheduled principal payments for the
Partnership's secured notes payable are as follows (in thousands):
<TABLE>
<S> <C>
1998........................................................ $125,879
1999........................................................ 34,385
2000........................................................ 20,178
2001........................................................ 75,967
2002........................................................ 14,750
Thereafter.................................................. 410,362
--------
$681,421
========
</TABLE>
NOTE 8 -- SECURED SHORT-TERM FINANCING
The Partnership utilizes a variety of secured short-term financing
instruments to manage its working capital needs and to fund real estate
investments. In 1994, the Partnership obtained a variable rate revolving credit
facility (the "Credit Facility") with Bank of America National Trust and Savings
Association ("Bank of America"). In August 1996, the Credit Facility was
extended through August 1998, the interest rate was reduced from LIBOR plus
1.75% to LIBOR plus 1.625% and the commitment was increased from $40.0 million
to $50.0 million. In May 1997, the Partnership increased its maximum amount
available under the Credit Facility from $50.0 million to $100.0 million.
Interest on the Credit Facility was payable monthly at the variable interest
rate of LIBOR plus 1.45% unless borrowings exceed 60% of the aggregate
collateral value, in which case, the interest rate was LIBOR plus 1.70%.
Commitment fees of 0.125% per annum on the remaining availability were payable
quarterly. The outstanding balance under the Credit Facility was $33.5 million
at December 31, 1997.
F-19
<PAGE> 490
AIMCO PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes the Partnership's secured short-term
financing at December 31, 1997 and 1996 (in thousands):
<TABLE>
<CAPTION>
1997 1996
------- --------
<S> <C> <C>
Floating rate interest only note, having a stated interest
rate of 7.67% at December 31, 1997........................ $19,050 $115,499
Floating rate interest only notes........................... -- 25,615
Floating rate interest only notes secured by property held
for sale.................................................. -- 1,051
9.25% fixed rate, non-amortizing note....................... 549 5,074
Floating rate Credit Facility, interest at 7.33% at December
31, 1997, expiring August 1998............................ 33,500 44,800
------- --------
$53,099 $192,039
======= ========
</TABLE>
Real estate assets, which secure the Partnership's short-term financing,
had a net book value of $104.0 million at December 31, 1997.
Secured short-term indebtedness totaling $33.5 million is guaranteed by
AIMCO and certain of its affiliates and secured by an assignment of the
Partnership's general partnership interests in 12 of the English Partnerships.
The Partnership replaced the Credit Facility with a new $50 million
unsecured revolving credit facility in January 1998, and a new $50 million
secured revolving credit facility in February 1998 (see Note 21).
NOTE 9 -- SECURED TAX-EXEMPT BOND FINANCING
The following table summarizes the Partnership's secured tax-exempt bond
financing at December 31, 1997 and 1996, which is non-recourse to the
Partnership (in thousands):
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
7.0% fully-amortizing bonds, effective rate of 7.3%, due
July 2016................................................. $46,498 $47,674
6.9% fully-amortizing bonds due, effective rate of 7.3% July
2016...................................................... 9,529 9,773
4.2% interest only bonds, effective rate of 6.7%, due July
2016...................................................... 5,958 6,000
6.0% interest only bonds, effective rate of 6.7%, secured by
a letter of credit in the amount of $5,350, due September
1998...................................................... 5,325 5,350
5.4% interest only bonds due December 2002.................. 6,700 6,700
------- -------
$74,010 $75,497
======= =======
</TABLE>
Real estate assets securing the tax-exempt bond financing had a net book
value of $107.5 million at December 31, 1997.
As of December 31, 1997, the scheduled principal payments for the
Partnership's secured tax-exempt bonds are as follows (in thousands):
<TABLE>
<S> <C>
1998........................................................ $ 7,031
1999........................................................ 1,827
2000........................................................ 1,956
2001........................................................ 2,096
2002........................................................ 2,244
Thereafter.................................................. 58,856
-------
$74,010
=======
</TABLE>
F-20
<PAGE> 491
AIMCO PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 10 -- UNSECURED SHORT-TERM FINANCING
In November 1996, the Partnership borrowed $12.5 million in conjunction
with the purchase of limited partnership interests in the English Partnerships.
The loan was repaid in February 1997 with proceeds from a public offering of
shares of Class A Common Stock (see Note 15), which were contributed by AIMCO to
the Partnership.
NOTE 11 -- INTEREST RATE LOCK AGREEMENTS
In 1996, in anticipation of refinancing certain indebtedness, the
Partnership entered into two interest rate lock agreements with a major New York
investment banking company (the "1996 Hedges"). The 1996 Hedges had an aggregate
notional value of $100.0 million and fixed the interest rate of the anticipated
refinancings at 6.2% and 6.3%. The 1996 Hedges were settled in April 1997 in
connection with the refinancing, at which time the Partnership realized
aggregate gains of approximately $3.4 million (see Note 7).
In March 1997, the Partnership entered into an interest rate lock agreement
with an investment banking company (the "March Hedge"). The March Hedge had a
notional value of $100.0 million and fixed the interest rate of the anticipated
refinancing at 7.053%. The March Hedge was settled December 1997, in connection
with the refinancing, at which time the Partnership realized a loss on the hedge
of approximately $10.9 million (see Note 7).
In September 1997, the Partnership entered into an interest rate lock
agreement (the "September Hedge") in anticipation of refinancing certain other
long-term indebtedness. The September Hedge has a notional principal amount of
$75.0 million, matures on March 19, 1998 and fixes the ten year treasury rate at
6.211% (see Note 21). Based on the fair value of the interest rate lock
agreement at December 31, 1997, the Partnership has a potential loss of the
September Hedge of approximately $2.6 million.
In October 1997, the Partnership entered into an interest rate lock
agreement (the "October Hedge") in anticipation of incurring indebtedness in
connection with the acquisition of the Foxchase Apartments. The October Hedge
had a notional value of $70.0 million and fixed the interest rate of the
anticipated indebtedness at 6.13%. The October Hedge was settled in December
1997 when the Foxchase acquisition was completed, at which time the Partnership
realized a loss of $1.4 million.
The Partnership is exposed to credit risk in the event of nonperformance by
the other parties to the interest rate lock agreements. However, the Partnership
does not anticipate nonperformance by the counterparties. In addition, since the
variable rate in the interest rate lock agreements is not on the same basis as
the variable rate indebtedness, the Partnership is exposed to losses to the
extent that the LIBOR rate and the Treasury rate change independently of each
other. The Partnership does not anticipate that inconsistent changes in the
LIBOR rate and the Treasury rate will have a material effect.
NOTE 12 -- COMMITMENTS AND CONTINGENCIES
Legal
In November 1996, purported limited partners of certain of the Tender Offer
English Partnerships filed a class action lawsuit against the Partnership, the
General Partner, AIMCO and AIMCO/PAM Properties L.P. (collectively, the "AIMCO
Parties") and J.W. English in the U.S. District Court for the Northern District
of California (the "Federal Action"), alleging among other things, that the
AIMCO Parties conspired with J.W. English to breach his fiduciary duty to the
plaintiffs, and that the offering materials used by the AIMCO Parties in
connection with the English Tender Offers contained misleading statements or
omissions. The Federal Action was voluntarily dismissed, without prejudice, in
favor of another purported class action filed in May 1997 by limited partners of
certain of the Tender Offer English Partnerships and six additional English
Partnerships. Two complaints were filed in Superior Court of the State of
California (the "California
F-21
<PAGE> 492
AIMCO PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Actions") against the AIMCO Parties and the J.W. English Companies, alleging,
among other things, that the consideration the AIMCO Parties offered in the
English Tender Offers was inadequate and designed to benefit the J.W. English
Companies at the expense of the limited partners, that certain
misrepresentations and omissions were made in connection with the English Tender
Offers, that the AIMCO Parties receive excessive fees in connection with their
management of the properties owned by the English Partnerships, that the AIMCO
Parties continue to refuse to liquidate the English Partnerships and that the
English Acquisition violated the partnership agreements governing the English
Partnerships and constituted a breach of fiduciary duty.
In addition to unspecified compensation and exemplary damages, the original
complaints in the California Actions sought an accounting, a constructive trust
on the assets and monies acquired by the English defendants in connection with
the English Acquisition, a court order removing the AIMCO Parties from
management of the English Partnerships and/or ordering disposition of the
properties and attorneys fees, expert fees and other costs. The AIMCO Parties
intend to vigorously defend themselves in connection with these actions. The
AIMCO Parties believe they are entitled to indemnity from the J.W. English
Companies, subject to certain exceptions. Failure by the AIMCO Parties to
prevail in the California Actions or to receive indemnification could have a
material adverse effect on the Partnership's financial condition and results of
operations.
On August 4, 1997, the AIMCO Parties filed demurrers to both complaints in
the California Actions. At a hearing on the demurrers on January 9, 1998, the
court granted the AIMCO Parties demurrers to each of the three causes of action
against it in the two complaints, with leave to amend. On February 25, 1998, the
plaintiffs filed a consolidated amended class and derivative complaint for
damages (the "Consolidated Amended Complaint"). The AIMCO Parties have until
March 27, 1998 to file a demurrer on behalf of the AIMCO Parties defendants. See
Note 21.
The Partnership is a party to various legal actions resulting from its
operating activities. These actions are routine litigation and administrative
proceedings arising in the ordinary course of business, some of which are
covered by liability insurance, and none of which are expected to have a
material adverse effect on the consolidated financial condition or results of
operations of the Partnership.
HUD Enforcement and Limited Denials
A significant number of the affordable units included in the AIMCO
Properties are subject to regulation by the U.S. Department of Housing and Urban
Development ("HUD"). HUD has the authority to suspend or deny property owners
and managers from participation in HUD programs with respect to additional
assistance within a geographic region through imposition of a limited denial of
participation ("LDP") by any HUD office or nationwide for violations of HUD
regulatory requirements. In March 1997, HUD announced its intention to step up
enforcement against property owners and managers who violate their agreements
with HUD, and in July 1997, HUD announced the creation of a new department-wide
enforcement division. Three HUD field offices have recently issued LDPs to NHP
as a result of physical inspections and mortgage defaults at four NHP
Properties, two of which are managed by the Partnership. One LDP was
subsequently withdrawn and another was terminated in December 1997 after a
reinspection of the property. The one remaining LDP, unless lifted, suspends the
Partnership's ability to manage or acquire additional HUD-assisted properties in
eastern Missouri until June 24, 1998. AIMCO has requested that HUD terminate the
one remaining LDP, but HUD has so far refused to do so, and the Partnership
cannot determine whether HUD will reverse that decision with respect to the
affected region. Because an LDP is prospective, existing HUD agreements are not
affected, so an LDP is not expected to result in the loss of management service
revenue from or otherwise to affect properties that the Partnership currently
manages in the subject regions. If HUD were to disapprove the Partnership as
property manager for one or more affordable properties, the Partnership's
ability to obtain property management revenues from new affordable properties
may be impaired.
F-22
<PAGE> 493
AIMCO PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
HUD monitors the performance of properties with HUD-insured mortgage loans.
HUD also monitors compliance with applicable regulations, and takes performance
and compliance into account in approving management of HUD-assisted properties.
In this regard, since July 1988, 29 HUD-assisted properties owned or managed by
the NHP Real Estate Companies or NHP have defaulted on non-recourse HUD-insured
mortgage loans. Eight of these 29 properties are also currently managed by the
Partnership. An additional six properties owned or managed by the Partnership
have received unsatisfactory performance ratings. As a result of the defaults
and unsatisfactory ratings, a national HUD office must review any field office
approval of the Partnership to act as property manager for a HUD-assisted
property. The national HUD office has consistently approved NHP's applications
to manage new properties, and the Partnership received HUD clearance to acquire
NHP and the NHP Real Estate Companies. The Partnership believes that it enjoys a
good working relationship with HUD and that the national office will continue to
apply the clearance process to large management portfolios such as the
Partnership, including the NHP Properties, with discretion and flexibility.
While there can be no assurance, the Partnership believes that the
unsatisfactory reviews and the mortgage defaults will not unsatisfactory have a
material impact on its results of operations or financial condition.
In October 1997, NHP received a subpoena from the Inspector General of HUD
(the "Inspector General") requesting documents relating to any arrangement
whereby NHP or any of its affiliates provides or has provided compensation to
owners of HUD multi-family projects in exchange for or in connection with
management of a HUD project. The Partnership believes that other owners and
managers of HUD projects have received similar subpoenas. Documents relating to
certain of the Partnership's acquisitions of property management rights for HUD
projects may be responsive to the subpoena. The Partnership is in the process of
complying with the subpoena and has provided certain documents to the Inspector
General, without conceding that they are responsive to the subpoena. The
Partnership believes that its operations are in compliance, in all material
respects, with all laws, rules and regulations relating to HUD-assisted or
HUD-insured properties. Although the Inspector General has not initiated any
action against the Partnership or, to the Partnership's knowledge, any owner of
a HUD property managed by the Partnership, if any such action is taken in the
future, it could ultimately affect existing arrangements with respect to HUD
projects or otherwise have a material adverse effect on the results of
operations of the Partnership.
Environmental
Certain of the Owned Properties, and some of the other AIMCO Properties,
are located on or near properties that contain or have contained underground
storage tanks or on which activities have occurred which could have released
hazardous substances into the soil or groundwater. There can be no assurance
that such hazardous substances have not been released or have not migrated, or
in the future will not be released or will not migrate, onto the AIMCO
Properties. Such hazardous substances have been released at certain Owned
Properties and, in at least one case, have migrated from an off-site location
onto an Owned Property. In addition, the Partnership's Montecito property in
Austin, Texas, is located adjacent to, and may be partially on, land that was
used as a landfill. Low levels of methane and other landfill gas have been
detected at Montecito. The City of Austin (the "City"), the former landfill
operator, has assumed responsibility for conducting all investigation and
remedial activities to date associated with the methane and other landfill gas.
The remediation of the landfill gas is now substantially complete and the Texas
Natural Resources Conservation Commission ("TNRCC") has preliminarily approved
the methane gas remediation efforts. Final approval of the site and the
remediation process is contingent upon the results of continued methane gas
monitors to confirm the effectiveness of the remediation efforts. Should further
actionable levels of methane gas be detected, a proposed contingency plan of
passive methane gas venting may be implemented by the City. The City has also
conducted testing at Montecito to determine whether, and to what extent,
groundwater has been impacted. Based on test reports received to date by the
Partnership, the groundwater does not appear to be contaminated at actionable
levels. The Partnership has not incurred, and does not expect to incur,
liability for the landfill investigation and remediation; however, the
Partnership has relocated some of its tenants and
F-23
<PAGE> 494
AIMCO PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
has installed a venting system according to the TNRCC's specifications under the
buildings slabs, in connection with the present raising of four of its buildings
in order to install stabilizing piers thereunder, at a total cost of
approximately $550,000, which is primarily the cost for the restabilization. The
restabilization was substantially completed in January 1998. The City will be
responsible for monitoring the conditions of Montecito.
All of the Owned Properties were subject to Phase I or similar
environmental audits by independent environmental consultants prior to
acquisition. The audits did not reveal, nor is the Partnership aware of, any
environmental liability relating to such properties that would have a material
adverse effect on the Partnership's business, assets or results of operations.
The Managed Properties may not have been subject to Phase I or similar
environmental audits by independent environmental consultants. However, the
Partnership is not aware of any environmental liability that would have a
material adverse effect on its business, financial condition or results of
operations relating to the Managed Properties.
In October 1997, NHP received a letter ("the EPA Letter") from the U.S.
Department of Justice ("DOJ") which stated that the U.S. Environmental
Protection Agency ("EPA") has requested that the DOJ file a lawsuit against NHP
alleging, among other things, that NHP violated the Clean Air Act, the National
Recycling and Emissions Reduction Programs and associated regulations in
connection with the employment of certain unlicensed personnel, maintenance and
disposal of certain refrigerants, and record-keeping practices at two
properties. A settlement in principle between NHP and EPA has been reached,
whereby NHP has agreed to pay a fine of less than $0.1 million, permit the EPA
to audit 40 NHP with respect to their use and disposal of such refrigerants, and
continue to provide training to all maintenance workers with respect to the
disposal of such refrigerants. A formal settlement agreement is expected to be
executed in 1998. It is possible that the future EPA audits agreed to in the
settlement could result in additional allegations by EPA of violations at such
properties; however, based on the terms of the settlement agreement with DOJ,
the Company anticipates that the fines, if any, resulting from such audits will
be nominal.
Lease Commitments
Minimum payments under the terms of all noncancellable operating leases in
which the Partnership is the lessee, principally for office space, at December
31, 1997 are as follows (in thousands):
<TABLE>
<S> <C>
1998........................................................ $ 541
1999........................................................ 376
2000........................................................ 211
2001........................................................ 170
2002........................................................ 127
------
$1,425
======
</TABLE>
Total rent expense for the years ended December 31, 1997, 1996 and 1995 was
$0.7 million, $0.6 million and $0.6 million, respectively.
NOTE 13 -- MINORITY INTERESTS IN OTHER PARTNERSHIPS
Interests held by limited partners (other than the Company) in real estate
partnerships controlled by the Company are reflected as Minority Interests in
Other Partnerships. Net income is allocated based on the percentage interest
owned by these limited partners in each respective real estate partnership.
NOTE 14 -- AIMCO REGISTRATION STATEMENTS
In April 1997, AIMCO filed a shelf registration statement with the
Securities and Exchange Commission which provides for the offering of, on a
delayed or continuous basis, debt securities, Class A Common Stock, preferred
stock and warrants with an aggregate value of up to $1.0 billion. The shelf
registration statement was
F-24
<PAGE> 495
AIMCO PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
declared effective in May 1997. As of December 31, 1997, AIMCO has issued
12,052,418 shares of Class A Common Stock and 3,150,000 shares of preferred
stock under the shelf registration, the aggregate gross proceeds of which was
$475.6 million. The proceeds from such offerings were contributed by AIMCO to
the Partnership for 12,052,418 OP Units and 3,150,000 Preferred Units. As of
December 31, 1997, up to $524.4 million of additional securities may be sold
under the shelf registration.
In February 1998, AIMCO issued 4,200,000 shares of newly created AIMCO
Class D Cumulative Preferred Stock ("Class D Preferred Stock") for gross
proceeds of $105.0 million (see Note 22). The proceeds from such offering were
contributed by AIMCO to the Partnership for 4,200,000 Preferred Units. After
giving effect to the sale of the Class D Preferred Stock, up to $419.4 million
of additional securities may be sold under the shelf registration.
NOTE 15 -- PARTNERS' CAPITAL
During 1996 AIMCO issued 895,250 shares of Class A Common Stock to certain
executive officers (or entities controlled by them) at $20.75 per share,
pursuant to the exercise of stock options issued under the Apartment Investment
and Management Company 1996 Stock Award and Incentive Plan. In exchange for the
shares purchased, the executive officers (or entities controlled by them)
executed notes payable totaling $18.6 million to AIMCO of which $11.9 million
was repaid during 1997. The notes receivable were contributed by AIMCO to the
Partnership in exchange for 895,250 OP Units.
In September 1996, AIMCO's Board of Directors authorized the repurchase of
up to 500,000 shares of Class A Common Stock in open market and privately
negotiated purchase transactions. The stock may be purchased from time to time
as market conditions warrant.
In February 1997, AIMCO completed a public offering of 2,015,000 shares of
Class A Common Stock at a public offering price of $26.75 per share. The net
proceeds of approximately $51.0 million were contributed by AIMCO to the
Partnership for 2,015,000 OP Units and were used to repay a portion of the
Partnership's indebtedness incurred in connection with 1996 acquisitions.
In May 1997, AIMCO sold 2,300,000 shares of Class A Common Stock at an
average price of $28 per share in two public offerings. The net proceeds of
approximately $63.0 million were contributed by AIMCO to the Partnership for
2,300,000 OP Units and were used to repay $56.0 million of outstanding
indebtedness under the Credit Facility and to provide working capital of $7.0
million. In addition, AIMCO issued 2,142,857 shares of Class A Common Stock in
connection with the acquisition of 2,866,073 shares of NHP Common Stock (see
Note 5).
In July 1997, AIMCO sold 1,100,000 shares of Class A Common Stock to
certain members of AIMCO's senior management at a price of $30 per share, the
closing price of the stock on the date of purchase. In exchange for the shares
purchased, such members of senior management executed notes payable to AIMCO
totaling $33.0 million, of which $15.8 million has been repaid as of February
28, 1998. The notes bear interest at 7.25% per annum, payable quarterly, and
mature in 2007. The notes are secured by the stock purchased and are recourse as
to 25% of the original amount borrowed. The notes receivable were contributed by
AIMCO to the Partnership in exchange for 1,100,000 OP Units.
In August 1997, AIMCO sold 750,000 shares of newly created Class B
Cumulative Convertible Preferred Stock ("Class B Preferred Stock") for gross
proceeds of $75.0 million in cash to an institutional investor in a private
transaction. The proceeds from the offering were contributed by AIMCO to the
Partnership in exchange for 750,000 Class B Preferred Units and were used by the
Partnership to repay outstanding indebtedness under the Credit Facility and to
provide working capital. Holders of the Class B Preferred Stock (which mirror
those of the Class B Preferred Units) are entitled to receive, when, as and if
declared by the Board of Directors, quarterly cash distributions per share equal
to the greater of $1.78125 or the cash distributions declared on the number of
shares of Class A Common Stock into which one share of Class B
F-25
<PAGE> 496
AIMCO PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Preferred Stock is convertible. Each share of Class B Preferred Stock is
convertible at the option of the holder, beginning in August 1998, into 3.28407
shares of Class A Common Stock, subject to certain anti-dilution adjustments.
The agreement pursuant to which AIMCO issued the Class B Preferred Stock
provides that the holders of such stock may require AIMCO to repurchase the
Class B Preferred Stock at a price of $105 per share, plus accrued and unpaid
distributions, if (i) at any time AIMCO fails to qualify as a REIT; or (ii) upon
the occurrence of a change of control of AIMCO, as defined by the aforementioned
agreement. The Class B Preferred Stock is senior to the Class A Common Stock as
to distributions and liquidation, and is non-voting.
In August and September 1997, AIMCO issued an aggregate of 5,052,418 shares
of Class A Common Stock to institutional investors for aggregate net proceeds of
$156.9 million. AIMCO used $114.4 million of such proceeds to purchase 5,717,000
shares of NHP Common Stock from ANHI, used $7.0 million to purchase 351,974
additional shares of NHP Common Stock from a third party pursuant to a stock
purchase agreement, and contributed the remaining $35.5 million to the
Partnership (see Note 5). An additional 61,364 shares of Class A Common Stock
were subsequently issued in exchange for 82,074 shares of NHP Common Stock. In
December 1997, AIMCO issued 4,554,873 shares of Class A Common Stock in
connection with the NHP Merger (see Note 5). Substantially all the assets and
liabilities of NHP were contributed by AIMCO to the Partnership.
In October 1997, AIMCO issued 7,000,000 shares of Class A Common Stock. The
net proceeds were contributed by AIMCO to the Partnership in exchange for
7,000,000 OP Units. Net proceeds from the sale of approximately $242.5 million
were used to fund certain property acquisitions, repay outstanding indebtedness
under the Credit Facility and provide working capital.
In December 1997, AIMCO issued 2,400,000 shares of newly created Class C
Cumulative Preferred Stock ("Class C Preferred Stock") for net proceeds of $58.1
million. The proceeds from the offering were contributed to the Partnership in
exchange for 2,400,000 Class C Preferred Units and were used by the Partnership
to repay indebtedness outstanding under the Credit Facility and to provide
working capital. Holders of the Class C Preferred Stock (which mirror those of
the Class C Preferred Units) are entitled to receive, when, as and if declared
by the Board of Directors, annual cash distributions equal to $2.25 per share.
The Class C Preferred Stock is senior to the Class A Common Stock as to
distributions and liquidation, and is non-voting. Upon any liquidation,
dissolution or winding up of AIMCO, before payment or distributions by AIMCO
shall be made to any holders of Class A Common Stock, the holders of the Class C
Preferred Stock shall be entitled to receive a liquidation preference of $25 per
share, plus accrued and unpaid distributions.
In February 1998, AIMCO issued 4,200,000 shares of Class D Cumulative
Preferred Stock in a public offering. The proceeds from the offering were
contributed by AIMCO to the Partnership in exchange for 4,200,000 Class D
Preferred Units. (see Note 21).
The outstanding common limited partnership units, excluding those common
units held by AIMCO, have been classified as redeemable partnership units
outside of permanent partners' capital in the accompanying balance sheet of the
Partnership. The units are initially recorded at fair value and subsequently
adjusted based on fair value at the balance sheet date as measured by the
closing price of AIMCO's common stock on that date multiplied by the total
number of units outstanding.
Certain individuals and entities own common units in the Partnership. A
common unit and a share of common stock of AIMCO have substantially the same
economic characteristics in as much as they effectively share equally in the net
income or loss of the Partnership.
Common units are redeemable by common unitholders (other than the General
Partner) at their option, subject to certain restrictions, on the basis of one
common unit for either one share of common stock or cash equal to the fair value
of a share at the time of redemption. AIMCO has the option to deliver shares of
common stock in exchange for all or any portion of the cash requested. When a
unitholder redeems a common
F-26
<PAGE> 497
AIMCO PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
unit, limited partner's capital is reduced and the general partner's capital is
increased. Common units held by AIMCO are not redeemable.
The following table sets forth the changes in redeemable units for the
period presented.
<TABLE>
<CAPTION>
LIMITED
PARTNERS
--------
<S> <C>
Redeemable Units at January 1, 1995......................... 32,047
OP Units redeemed in exchange for AIMCO Common Stock...... (18)
Acquisition of real estate through issuance of OP Units... 2,626
Net income................................................ 1,613
Distributions paid to OP Unit holders..................... (2,925)
Adjustment to reflect limited partners' equity at
redemption value....................................... 5,120
-------
Redeemable Units at December 31, 1995....................... 38,463
OP Units redeemed in exchange for AIMCO Common Stock...... (3,799)
Acquisition of real estate or interests in real estate
partnerships through issuance of OP Units.............. 32,156
Repayment of secured note payable through issuance of OP
Units.................................................. 1,168
Net income................................................ 2,689
Distributions paid to OP Unit holders..................... (3,815)
Adjustment to reflect limited partners' equity at
redemption value....................................... 29,202
-------
Redeemable Units at December 31, 1996....................... 96,064
OP Units redeemed in exchange for AIMCO Common Stock...... (8,621)
Acquisition of real estate or interests in real estate
partnerships through issuance of OP Units.............. 63,375
OP Units issued in accordance with partnership
amendment.............................................. (123)
Net income................................................ 4,064
Distributions paid to OP Unit holders..................... (5,510)
Adjustment to reflect limited partners' equity at
redemption value....................................... 47,837
-------
Redeemable Units at December 31, 1997....................... 197,086
</TABLE>
NOTE 16 -- STOCK OPTION PLANS AND STOCK WARRANTS
AIMCO, from time to time, will issue stock options and stock warrants. Upon
exercise of the stock options or stock warrants, AIMCO must contribute the
proceeds received to the Partnership in exchange for OP Units in the same number
as Class A Common Stock issued in connection with the exercised stock options or
stock warrants. Therefore, the following disclosures are made pertaining to
AIMCO's stock options and stock warrants.
AIMCO has elected to follow Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees ("APB 25") and related interpretations
in accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation ("SFAS
123"), requires use of option valuation models that were not developed for use
in valuing employee stock options. Under APB 25, because the exercise price of
the AIMCO's employee stock options equals the market price of the underlying
stock on the date of grant, no compensation expense is recognized.
AIMCO's Board of Directors has adopted the 1994 Stock Option Plan of
Apartment Investment and Management Company (the "1994 Plan"), the Apartment
Investment and Management Company 1996 Stock Award and Incentive Plan (the "1996
Plan"), the Apartment Investment and Management Company 1997 Stock Award and
Incentive Plan (the "1997 Plan") and the Apartment Investment and Management
F-27
<PAGE> 498
AIMCO PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company Non-Qualified Employee Stock Option Plan (the "Non-Qualified Plan") to
attract and retain officers, key employees and independent directors. The 1994
Plan provides for the granting of a maximum of 150,000 options to purchase
common shares. The 1996 Plan provides for the granting of a maximum of 500,000
options to purchase common shares. The 1997 Plan provides for the granting of a
maximum of 20,000,000 options to purchase common shares. The Non-Qualified Plan
provides for the granting of a maximum of 500,000 options to purchase common
shares. The 1994 Plan, the 1996 Plan, the 1997 Plan and the Non-Qualified Plan
allow for the grant of incentive and non-qualified stock options, and are
administered by the Compensation Committee of the Board of Directors. The 1994
Plan also provides for a formula grant of the non-qualified stock options to the
independent directors to be administered by the Board of Directors to the extent
necessary. The exercise price of the options granted may not be less than the
fair market value of the common stock at the date of grant. The term of the
incentive and non-qualified options is ten years from the date of grant. The
non-qualified options vest 20% per year over a five-year period with initial
vesting one year from the date of grant. Terms may be modified at the discretion
of the Compensation Committee of the Board of Directors.
Pro forma information regarding net income and earnings per share is
required by SFAS 123, which also requires that the information be determined as
if AIMCO had accounted for its employee stock options granted subsequent to
December 31, 1994 under the fair value method of that statement. The fair value
for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted average assumptions:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Range of risk free interest rates.......... 5.2% to 7.5% 5.2% to 7.5% 5.2% to 7.5%
Expected distribution yield................ 6.0% 7.8% 7.8%
Volatility factor of the expected market 0.175 0.194 0.194
price of AIMCO's common stock............
Weighted average expected life of 4.5 years 4.5 years 4.5 years
options..................................
</TABLE>
The Black-Scholes option valuation model was developed for use in
estimating fair value of traded options which have no vesting restrictions and
are fully transferable. In addition, option valuation models require the input
of highly subjective assumptions including the expected stock price volatility.
Because AIMCO's stock options have characteristics significantly different from
those of traded options, and because changes in the subjective input assumptions
can materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of the fair
value of its employee stock options. For purposes of pro forma disclosures, the
estimated fair value of the options is amortized over the options' vesting
period. AIMCO's pro forma information for the options is as follows (in
thousands except per share information):
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- ------
<S> <C> <C> <C>
Pro forma income attributable to OP Unitholders.......... $30,160 $14,890 $9,804
Pro forma basic earnings per OP Unit..................... $ 1.07 $ 0.99 $ 0.86
</TABLE>
The effects of applying SFAS 123 in calculating pro forma income
attributable to common shareholders and pro forma basic earnings per share may
not necessarily be indicative of the effects of applying SFAS 123 to future
years' earnings.
F-28
<PAGE> 499
AIMCO PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes the option activity for the years ended
December 31, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Outstanding at beginning of year........ 505,000 108,000 86,000
AIMCO options granted................... 127,000 803,000 27,000
AIMCO options exercised................. (342,000) (383,000) --
AIMCO options forfeited................. (6,000) (23,000) (5,000)
NHP options assumed..................... 595,000 -- --
NHP options exercised................... (95,000) -- --
------------- ------------- -------------
Outstanding at end of year.............. 784,000 505,000 108,000
============= ============= =============
Stock options exercisable at the end of
year.................................. 690,000 425,000 26,000
============= ============= =============
Weighted average fair value of options
granted during the year............... $3.24 $1.01 $1.75
Weighted average exercise price......... $30.01 $20.74 $17.69
Exercise prices......................... $12.36-$35.00 $20.25-$20.75 $17.12-$18.37
Weighted average remaining contractual
life.................................. 8.12 years 9.57 years 9.21 years
</TABLE>
At December 31, 1997, the outstanding options consisted of: (i) 500,000 NHP
options assumed, with exercise prices ranging from $12.36 to $22.74 and a
weighted average exercise price of $17.79, all immediately exercisable; (ii)
234,000 AIMCO options (190,000 exercisable) with exercise prices ranging from
$17.125 to $27.75, a weighted average exercise price of $22.13 and a weighted
average life of 8.0 years; and (iii) 50,000 AIMCO options (none exercisable)
with an exercise price of $35.00 and remaining life of 9.7 years.
On June 3, 1997, AIMCO issued warrants (the "NHP Warrants") exercisable to
purchase an aggregate of 399,999 shares of Class A Common Stock at $36 per share
at any time prior to June 3, 2002. The NHP Warrants were issued as part of the
consideration for the NHP Real Estate Companies in a private transaction exempt
from registration under the Securities Act pursuant to Section 4(2) thereof.
When the NHP Warrants are exercised, the proceeds will be contributed to the
Partnership for an equal number of OP Units.
On December 2, 1997, AIMCO issued warrants (the "Oxford Warrants")
exercisable to purchase up to an aggregate of 500,000 shares of Class A Common
Stock at $41 per share. The Oxford Warrants were issued to affiliates of Oxford
Realty Financial Group, Inc., a Maryland corporation ("Oxford"), in connection
with the amendment of certain agreements pursuant to which the Partnership
manages properties controlled by Oxford or its affiliates. The actual number of
shares of Class A Common Stock for which the Oxford Warrants will be exercisable
is based on certain performance criteria with respect to the Partnership's
management arrangements with Oxford for each of the five years ending December
31, 2001. The Oxford Warrants are exercisable for six years after the
determination of such criteria for each of the five years. The Oxford Warrants
were issued in a private transaction exempt from registration under the
Securities Act pursuant to Section 4(2) thereof. When the Oxford Warrants are
exercised, the proceeds will be contributed to the Partnership for an equal
number of OP Units.
NOTE 17 -- EARNINGS PER OP UNIT
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, Earnings Per Share ("SFAS 128") which
replaced Accounting Principles Board Opinion No. 15 ("APB 15"). Since each OP
Unit may be redeemed by the holder thereof for either one share of AIMCO common
stock or cash equal to the fair market value thereof at the time of such
redemption, at the option of AIMCO, the Partnership applies the requirements of
SFAS 128 to its calculations of its per OP Unit information. As required, the
Partnership adopted SFAS 128 as of December 31, 1997.
F-29
<PAGE> 500
AIMCO PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Class B Preferred Units are convertible (see Note 15). The Class C
Preferred Units are not convertible.
The following table illustrates the calculation of basic and diluted
earnings per unit for the years ended December 31, 1997, 1996 and 1995 (in
thousands, except per unit data):
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Numerator:
Net income.......................................... $32,697 $15,673 $14,988
Preferred Unit distributions........................ (2,315) -- (5,169)
------- ------- -------
Numerator for basic and diluted earnings per OP Unit--
income attributable to OP Unitholders............... $30,382 $15,673 $ 9,819
======= ======= =======
Denominator:
Denominator for basic earnings per OP
Unit -- weighted average number of OP Units
outstanding...................................... 27,732 14,978 11,453
Effect of dilutive securities:
Employee options................................. 381 14 6
Warrants......................................... -- 2 2
------- ------- -------
Dilutive potential OP Units........................... 381 16 8
------- ------- -------
Denominator for diluted earnings per OP Unit.......... 28,113 14,994 11,461
======= ======= =======
Basic earnings per common OP Unit:
Operations.......................................... $ 0.99 $ 1.05 $ 0.86
Gain on disposition of properties................... 0.11 -- --
Extraordinary item.................................... (0.01) -- --
------- ------- -------
Total....................................... $ 1.09 $ 1.05 $ 0.86
======= ======= =======
Diluted earnings per OP Unit:
Operations.......................................... $ 0.98 $ 1.04 $ 0.86
Gain on dispositions of properties.................. 0.11 -- --
Extraordinary item.................................. (0.01) -- --
------- ------- -------
Total....................................... $ 1.08 $ 1.04 $ 0.86
======= ======= =======
</TABLE>
NOTE 18 -- RECENT ACCOUNTING DEVELOPMENTS
In June, 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income ("SFAS
130") which provides guidance with respect to the calculation and presentation
of comprehensive income. Comprehensive income includes all transactions
affecting partners' capital, including the traditional measure of net income,
and excluding contributions from and distributions to OP Unitholders. Under SFAS
130, companies will be required to present comprehensive income and its
components on the face of the income statement or in a separate financial
statement that is displayed with the same prominence. The Partnership has
elected not to adopt the provisions of SFAS 130 as of December 31, 1997.
In June, 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, Disclosures about Segments of an
Enterprise and Related Information ("SFAS 131") which redefines how business
segments are identified and stipulates the content and nature of segment
information to be presented in the financial statements. The Partnership has
elected not to adopt the provisions of SFAS 131 as of December 31, 1997.
F-30
<PAGE> 501
AIMCO PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 19 -- TRANSACTIONS WITH AFFILIATES
The Partnership serves as property manager for certain apartment properties
owned by entities in which certain officers of AIMCO have an ownership interest.
Compensation for these services is 3% to 6% of gross receipts from the
properties and were $5.4 million, $0.6 million and $1.3 million for the years
ending December 31, 1997, 1996 and 1995, respectively. In addition, the
Partnership received consulting fees from affiliates of $0.1 million for the
year ended December 31, 1995. No consulting fees from affiliates were received
for 1997 or 1996.
In 1996, the Partnership acquired the Peachtree Park Apartments in Atlanta,
Georgia and the Somerset Village Apartments in Salt Lake City, Utah from
entities controlled by officers of AIMCO. The aggregate consideration paid of
$39.6 million consisted of $3.8 million in cash, 494,125 OP with a total
recorded value of $9.9 million, and the assumption of $25.9 million of secured
short-term indebtedness. In addition, the Partnership acquired the cable
equipment at the Peachtree Park Apartments from an entity controlled by an
officer of AIMCO in exchange for 8,243 OP Units with a recorded value $0.2
million.
On December 1, 1997, the Partnership purchased the Foxchase Apartments for
approximately $107.7 million from First Alexandria Associates, Limited
Partnership. The purchase price consisted of approximately $70.0 million in
assumed mortgage obligations and the remainder in OP Units. The Company serves
as the general partner and a limited partner in First Alexandria Associates,
Limited Partnership and has a 54% interest in the partnership.
During 1997, in order to preserve AIMCO's REIT status, AIMCO contributed
the following assets to the Partnership for OP Units. The Partnership, in turn,
contributed the assets to the Unconsolidated Subsidiaries: (i) partnership
interests with an estimated value of approximately $0.4 million; (ii)
partnership interests, a $50.0 million promissory note and certain management
agreements with an aggregate estimated value of approximately $53.7 million; and
(iii) the stock of certain corporations with an estimated value of $25.0
million.
During July 1997, AIMCO sold 1,100,000 shares of Class A Common Stock to
certain members of AIMCO's senior management at a price of $30.00 per share, the
closing price of the stock on the date of the purchase. In exchange for the
shares purchased, such members of senior management executed notes payable to
AIMCO totaling $33.0 million, of which approximately $10.1 million has been
repaid as of December 31, 1997 (see Note 15). The notes receivable were
contributed by AIMCO to the Partnership in exchange for 1,100,000 OP Units.
On August 15, 1997, the Partnership contributed stock of a captive
insurance subsidiary to PAMS Inc. Certain members of AIMCO's senior management
are shareholders in PAMS Inc. In order to maintain their aggregate 5% ownership
interest in PAMS Inc., these individuals contributed an aggregate of $0.2
million to PAMS Inc.
On January 21, 1998, the Partnerships sold an aggregate of 15,000 High
Performance Units to a limited liability company formed by certain members of
AIMCO's senior management and to AIMCO's non-employee directors, for $2.1
million in cash (see Note 21).
On January 31, 1998, AIMCO entered into a Contribution Agreement with CK
Services, Inc. ("CK") and the stockholders of CK to cause certain assets to be
transferred to CK and to distribute all outstanding stock of CK to the
stockholders of AIMCO. CK is a corporation wholly-owned by Terry Considine,
AIMCO's Chairman and Chief Executive Officer, and by Peter Kompaniez, AIMCO's
President and Vice Chairman (see Note 21).
F-31
<PAGE> 502
AIMCO PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 20 -- EMPLOYEE BENEFIT PLANS
The Partnership offers medical, dental, life and long-term disability
benefits to employees of the Partnership through insurance coverage of
company-sponsored plans. The medical and dental plans are self-funded and are
administered by independent third parties. In addition, the Partnership also
participates in a 401(k) defined-contribution employee savings plan. Employees
who have completed six months of service are eligible to participate. The
Partnership matches 50% of the participant's contributions to the plan up to a
maximum of 6% of the participant's prior year compensation.
NOTE 21 -- SUBSEQUENT EVENTS
Distribution Declared
On January 22, 1998, AIMCO's Board of Directors, and AIMCO, as the General
Partner, declared a cash distribution of $0.5625 per OP Unit (equivalent to
$2.25 on an annualized basis, an increase of 21.6% per OP Unit from the 1997
annualized distribution rate) for the quarter ended December 31, 1997, payable
on February 13, 1998 to OP Unitholders of record on February 6, 1998.
Creation of New Credit Facility
In January 1998, the Partnership replaced the existing Credit Facility with
a new $50 million unsecured revolving credit facility (the "BOA Credit
Facility") with Bank of America and BankBoston, N.A. The Partnership is the
borrower under the BOA Credit Facility, but all obligations thereunder are
guaranteed by AIMCO and certain of its subsidiaries. The interest rate under the
BOA Credit Facility is based on either LIBOR or Bank of America's reference
rate, at the election of the Partnership, plus an applicable margin (the
"Margin"). The Margin ranges between 0.6% and 1.0% in the case of LIBOR based
loans and between 0% and 0.5% in the case of loans based on Bank of America's
reference rate, depending upon the credit rating of the Partnership's senior
unsubordinated unsecured long-term indebtedness. The BOA Credit Facility expires
on January 26, 2000 unless extended for successive one-year periods at the
discretion of the lenders. The BOA Credit Facility provides for the conversion
of the revolving facility into a three-year term loan. The financial covenants
contained in the BOA Credit Facility require the Partnership to maintain a ratio
of debt to gross asset value of no more than 0.55 to 1.0, an interest coverage
ratio of 2.25 to 1.0 and a debt service coverage ratio of at least 2.0 to 1.0.
In addition, the BOA Credit Facility limits the Partnership from distributing
more than 80% of its Funds From Operations (as defined) to OP Unitholders,
imposes minimum net worth requirements and provides other financial covenants
related to certain unencumbered assets.
In February 1998, the Partnership, as borrower, and AIMCO and certain
single asset wholly-owned subsidiaries of the Partnership (the "Owners"), as
guarantors, entered into a five year secured credit facility agreement (the "WMF
Credit Facility") with Washington Mortgage Financial Group, Ltd. ("Washington
Mortgage"), which provides for a $50 million revolving credit facility and
conversion of all or a portion of such revolving credit facility to a base loan
facility. The WMF Credit Facility provides that all the rights of Washington
Mortgage are assigned to the Federal National Mortgage Association ("FNMA"), but
FNMA does not assume Washington Mortgage's obligations under the WMF Credit
Facility. At the Partnership's request, the commitment amount may be increased
to an amount not to exceed $250 million, subject to consent of Washington
Mortgage and FNMA in their sole and absolute discretion. The Partnership and
affiliates have pledged their ownership interests in the Owners as security for
its obligations under the WMF Credit Facility. The guarantees of the Owners are
secured by assets of the Owners, including four apartment properties and two
mortgage notes. Advances to the Partnership under the WMF Credit Facility are
funded with the proceeds of the sale to investors of FNMA mortgage backed
securities that are secured by the advance and an interest in the collateral.
The interest rate on each advance is determined by investor bids for such
mortgage backed securities plus a fee spread presently equal to 0.5%. The
maturity date of each advance
F-32
<PAGE> 503
AIMCO PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
under the revolving portion of the WMF Credit Facility is a date between three
and nine months from the closing date of the advance as selected by the
Partnership. Advances under the base facility mature at a date, selected by the
Partnership, between ten and twenty years from the date of the advance. Subject
to certain conditions, the Partnership has the right to add or substitute
collateral. The WMF Credit Facility requires the Partnership to maintain a ratio
of debt to gross asset value of no more than 0.55 to 1.0, an interest coverage
ratio of at least 2.25 to 1.0, and a debt service coverage ratio of at least 2.0
to 1.0, imposes minimum net worth requirements and also provides other financial
covenants and interest coverage ratios that are specifically related to the
collateral.
Contribution Agreement
On January 31, 1998, AIMCO entered into a Contribution Agreement with CK
Services, Inc. ("CK") and the stockholders of CK to cause certain assets to be
transferred to CK and to distribute all outstanding stock of CK to the
stockholders of AIMCO. CK is a corporation wholly-owned by Terry Considine,
AIMCO's Chairman and Chief Executive Officer, and by Peter Kompaniez, AIMCO's
President and Vice Chairman.
CK was created as a vehicle for holding property and performing services
that AIMCO is limited or prohibited from holding or providing due to its
election to be taxed as a REIT. AIMCO is finalizing which assets will be
contributed to CK. Any transfer of assets or services to CK will be at market
rates and approved by the independent members of AIMCO's Board of Directors, and
if market rates are difficult to ascertain, there is no guarantee that the
pricing will favor AIMCO.
Pursuant to the Contribution Agreement, AIMCO will contribute certain
assets to CK and, in return, the stock of CK will be contributed to AIMCO or one
of its subsidiaries. Following the contribution of CK stock, AIMCO will agree to
contribute additional assets to CK with the intent of creating a stand-alone
entity meeting the requirements for listing on the NYSE or NASDAQ National
Market, and if AIMCO is successful in doing so, the stock of CK will be
distributed to the stockholders of AIMCO. If AIMCO is unable to list the CK
stock on the NYSE or NASDAQ National Market, CK will remain a direct or indirect
subsidiary of AIMCO and AIMCO will pay to the former stockholders of CK an
amount necessary to compensate the former CK stockholders for the value of such
stock on January 31, 1998. Consummation of the transaction is subject to the
approval of the independent members of AIMCO's board of directors.
Stock Offering
On February 19, 1998, AIMCO issued 4,200,000 shares of Class D Preferred
Stock in a public offering. The net proceeds of $101.7 million from the offering
were contributed by AIMCO to the Partnership in exchange for 4,200,000 Class D
Preferred Units and were used to repay indebtedness under the BOA Credit
Facility and to fund working capital requirements. Holders of the Class D
Preferred Stock (which mirror those of the Class D Preferred Units) are entitled
to receive, when, as and if declared by the Board of Directors, annual cash
distributions equal to $2.1875 per share. The Class D Preferred Stock are senior
to the Class A Common Shares as to distributions and liquidation. Upon any
liquidation, dissolution or winding up of AIMCO, before payment or distributions
by AIMCO shall be made to any holders of Class A Common Shares, the holders of
the Class D Preferred Stock shall be entitled to receive a liquidation
preference of $25 per share, plus accrued and unpaid distributions.
Property Acquisitions
On February 4, 1998, the Partnership purchased Steeplechase Apartments, an
apartment community containing 484 units, located in Tyler, Texas, for $9.8
million plus closing costs. The acquisition was funded with short-term
borrowings under the BOA Credit Facility.
F-33
<PAGE> 504
AIMCO PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Issuance of High Performance Units
On January 21, 1998, the Partnership sold an aggregate of 15,000 High
Performance Units to a limited liability company formed by certain members of
AIMCO's senior management and to AIMCO's non-employee directors, for $2.1
million in cash.
Pending Acquisition
On March 17, 1998, AIMCO entered into a definitive merger agreement to
acquire the multi-family apartment management operations, and certain property
holdings, of Insignia Financial Group, Inc. ("Insignia") for approximately $910
million, including the assumption of debt. Insignia is one of the largest
managers of multi-family residential properties in the United States, having a
management portfolio consisting of approximately 191,000 units as of December
31, 1997.
Arbor Station Acquisition
On April 15, 1998, the Partnership purchased Arbor Station, a 264-unit
apartment community located in Montgomery, Alabama. Total consideration paid of
$11.4 million was comprised of $9.9 million in cash, and 38,237 OP units valued
at $1.5 million.
Distribution Declared
On April 16, 1998, AIMCO's Board of Directors, and AIMCO, as the General
Partner, declared a cash distribution of $0.5625 per OP Unit for the quarter
ended March 31, 1998, payable on May 14, 1998 to OP Unitholders of record on May
7, 1998.
Heather Ridge Acquisition
On April 30, 1998, the Partnership purchased Heather Ridge II, a 72-unit
apartment community located in Arlington, Texas. Total consideration paid of
$2.0 million was comprised of $0.8 million in cash and the assumption of $1.2
million in mortgage indebtedness.
Increase in Unsecured Revolving Credit Facility
In May 1998, the Partnership increased its borrowing capacity under the BOA
Credit Facility to $155.0 million for a six-month period. At the conclusion of
the six-month period, the maximum borrowing capacity returns to its original
$50.0 million. The interest rate to be applied to the incremental borrowings is
based on either LIBOR plus a margin of 0.9% or the aforementioned Bank of
America reference rate. The additional borrowing capacity will be used to
facilitate the closing of the Ambassador and Insignia mergers.
Ambassador Merger
On May 8, 1998, the Ambassador Merger was completed. Pursuant to the
Ambassador Merger Agreement, all outstanding shares of Ambassador Common Stock
were converted into AIMCO Class A Common Stock, at a conversion ratio of 0.553,
resulting in the issuance of up to 6,578,833 shares of AIMCO Class A Common
Stock. Concurrently, all outstanding options to purchase Ambassador Common Stock
were converted into options to purchase AIMCO Class A Common Stock, at the same
conversion ratio, or cash. Contemporaneously, with the consummation of the
Ambassador Merger, the OP Merger was consummated. Each outstanding unit of
limited partnership interest in the Ambassador Operating Partnership was
converted into the right to receive 0.553 OP Units, and as a result, the
Ambassador Operating Partnership became a 99.9% owned subsidiary partnership of
the Partnership.
F-34
<PAGE> 505
AIMCO PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Landmark Acquisition
On May 22, 1998, the Partnership purchased Landmark Apartments, a 101-unit
apartment community located in Albuquerque, New Mexico. Total consideration paid
of $5.2 million was comprised of $1.8 million in cash and 89,964 OP Units valued
at $3.4 million.
Citrus Grove Acquisition
On June 5, 1998, the Partnership purchased Citrus Grove Apartments, a
198-unit apartment community located in Redlands, California for $7.5 million in
cash.
Villa La Paz Acquisition
On June 5, 1998, the Partnership purchased Villa la Paz Apartments, a
96-unit apartment community located in Sun City, California for $3.8 million in
cash.
Interest Rate Lock Agreements
Subsequent to March 31, 1998, the Partnership refinanced certain mortgage
indebtedness relating to ten real estate partnerships, and realized losses under
the September Hedge of approximately $3.9 million, which have been deferred and
will be amortized over the life of refinanced debt.
Legal
In regards to the California Actions (see Note 12), at a hearing on the
demurrers on January 9, 1998, the court sustained the AIMCO Parties' demurrers
to each of the three causes of action in the two complaints, with leave to
amend. On February 25, 1998, the plaintiffs filed a consolidated amended class
and derivative complaint for damages (the "Consolidated Amended Complaint"). The
Consolidated Amended Complaint has added as defendants the general partners of
the English Partnerships and dropped certain defendants, including AIMCO/PAM
Properties, L.P. The Consolidated Amended Complaint seeks compensatory and
punitive damages and alleges six causes of action for breach of fiduciary duty
(two separate causes of action), for an accounting, breach of the implied
covenant of good faith and fair dealing, and for inducing breach of contract.
Plaintiffs have also added allegations of alleged wrongful conduct in connection
with the Partnership's second group of tender offers commenced in late 1997. On
March 27, 1998, the remaining AIMCO defendants and the general partners of the
English Partnerships filed demurrers to the Consolidated Amended Complaint. On
May 22, 1998, the Court overruled the demurrers. Trial is scheduled to begin on
October 5, 1998.
F-35
<PAGE> 506
AIMCO PROPERTIES, L.P.
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER UNIT DATA)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
(UNAUDITED)
<S> <C> <C>
Real estate, net of accumulated depreciation of $330,365 and
$153,285.................................................. $2,355,122 $1,503,922
Property held for sale...................................... 42,212 6,284
Investments in and notes receivable from unconsolidated
subsidiaries.............................................. 127,082 84,459
Investments in and notes receivable from unconsolidated real
estate Partnerships....................................... 246,847 212,150
Cash and cash equivalents................................... 43,681 37,088
Restricted cash............................................. 83,187 24,229
Accounts receivable......................................... 11,545 28,656
Deferred financing costs.................................... 21,835 12,793
Goodwill, net of accumulated amortization of $4,854 and
$522...................................................... 120,503 125,239
Other assets................................................ 69,935 65,690
---------- ----------
Total assets...................................... $3,121,949 $2,100,510
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Secured notes payable....................................... $ 774,676 $ 681,421
Secured tax-exempt bond financing........................... 399,925 74,010
Unsecured short-term financing.............................. 50,800 --
Secured short-term financing................................ 50,000 53,099
---------- ----------
Total indebtedness................................ 1,275,401 808,530
---------- ----------
Accounts payable, accrued and other liabilities............. 131,799 88,170
Resident security deposits and prepaid rents................ 13,171 10,213
---------- ----------
Total liabilities................................. 1,420,371 906,913
---------- ----------
Commitments and contingencies............................... -- --
Minority interests.......................................... 42,086 36,335
Redeemable Partnership Units................................ 232,405 197,086
Partners' Capital
General and Special Limited Partner....................... 1,039,525 827,280
Preferred Units........................................... 387,562 134,579
Accumulated other comprehensive losses.................... -- (1,683)
---------- ----------
Total partners' capital........................... 1,427,087 960,176
---------- ----------
Total liabilities and partners' capital........... $3,121,949 $2,100,510
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-36
<PAGE> 507
AIMCO PROPERTIES, L.P.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER UNIT DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
-------------------------------
SEPT. 30, 1998 SEPT. 30, 1997
-------------- --------------
<S> <C> <C>
RENTAL PROPERTY OPERATIONS
Rental and other property revenues.......................... $ 265,700 $127,083
Property operating expenses................................. (101,600) (50,737)
Owned property management expense........................... (7,746) (4,344)
Depreciation................................................ (59,792) (23,848)
--------- --------
Income from property operations............................. 96,562 48,154
--------- --------
SERVICE COMPANY BUSINESS
Management fees and other income............................ 13,968 9,173
Management and other expenses............................... (8,101) (5,029)
Corporate overhead allocation............................... (196) (441)
Other assets depreciation and amortization.................. (3) (236)
--------- --------
Income from service company business........................ 5,668 3,467
Minority interests in service company business.............. -- 48
--------- --------
Company's share of income from service company Business..... 5,668 3,515
--------- --------
General and administrative expenses......................... (7,444) (1,408)
Interest expense............................................ (56,756) (33,359)
Interest income............................................. 18,244 4,458
Minority interest in other partnerships..................... (1,052) (777)
Equity in losses of unconsolidated partnerships............. (5,078) (463)
Equity in earnings of unconsolidated subsidiaries........... 8,413 456
Amortization of goodwill.................................... (5,071) (711)
--------- --------
Income from operations...................................... 53,486 19,865
Extraordinary item -- early extinguishment of debt.......... -- (269)
Gain on disposition of properties........................... 2,783 (169)
--------- --------
Net income
$ 56,269 $ 19,427
--------- --------
Net income attributable to Preferred Unitholders............ $ 16,320 $ 835
========= ========
Net income attributable to OP Unitholders................... $ 39,949 $ 18,592
========= ========
Net income.................................................. $ 56,269 $ 19,427
Other comprehensive income:
Net unrealized gains on investment in securities.......... -- 1,175
--------- --------
Comprehensive income........................................ $ 56,269 $ 20,602
========= ========
Basic earnings per OP Unit.................................. $ 0.80 $ 0.77
========= ========
Diluted earnings per OP Unit................................ $ 0.79 $ 0.77
========= ========
Weighted average OP Units outstanding....................... 50,420 23,648
========= ========
Weighted average OP Units and OP Unit equivalents
outstanding............................................... 50,544 24,314
========= ========
Distributions paid per OP Unit.............................. $ 1.6875 $ 1.3875
========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-37
<PAGE> 508
AIMCO PROPERTIES, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOW
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS ENDED
SEPT. 30, 1997
--------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income................................................ $ 19,427
---------
Adjustments to reconcile net income to net cash provided
by Operating activities:
Depreciation and amortization........................... 26,595
(Gain) loss on disposition of properties................ 169
Minority interests...................................... 777
Equity in earnings of unconsolidated partnerships....... 463
Equity in earnings of unconsolidated subsidiaries....... (456)
Extraordinary loss on early extinguishment of debt...... 269
Changes in operating assets and operating liabilities... 6,191
---------
Total adjustments.................................. 34,008
---------
Net cash provided by operating activities.......... 53,435
---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of real estate................................... (86,205)
Additions to real estate.................................. (16,959)
Proceeds from sale of property held for sale.............. 231
Additions to property held for sale....................... (139)
Purchase of general and limited partnership interests..... (67,393)
Purchase of/additions to notes receivable................. (39,918)
Proceeds from repayments of notes receivable.............. --
Distributions from investments in real estate partnerships
and unconsolidated subsidiaries......................... 38,000
Cash received in connection with Ambassador Merger........ --
Contribution to unconsolidated subsidiaries............... --
Purchase of NHP common stock.............................. (121,437)
Purchase of investments held for sale..................... (19,881)
Purchase of office equipment and leasehold improvements... (1,113)
Redemption of OP Units.................................... --
---------
Net cash used in investing activities.............. (314,814)
---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from secured notes payable borrowings............ 94,111
Principal repayments on secured notes payable............. (4,451)
Principal repayments on secured tax-exempt bond
financing............................................... (1,056)
Repayments on secured short-term financing................ (258,922)
Net borrowings on the Company's revolving credit
facilities.............................................. 140,680
Payment of loan costs, net of proceeds from interest rate
hedge................................................... 1,346
Proceeds from issuance of OP Units and Preferred Units,
net of underwriting and offering costs.................. 343,960
Repurchase of OP Units.................................... --
Principal repayments received on notes due from officers
on OP Unit purchases.................................... 10,323
Payment of OP Unit distributions.......................... (28,135)
Payment of distributions to limited partners.............. (3,872)
Payment of Preferred Unit distributions................... --
Payment of distributions to OP Unitholders................ --
Proceeds from issuance of High Performance Units.......... --
---------
Net cash provided by financing activities.......... 293,984
---------
NET INCREASE IN CASH AND CASH EQUIVALENTS................... 32,605
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 13,170
---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 45,775
=========
</TABLE>
See accompanying notes to consolidated financial statements.
F-38
<PAGE> 509
AIMCO PROPERTIES, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOW
(IN THOUSANDS, EXCEPT SHARE AND OP UNIT DATA)
1998 NON CASH INVESTING AND FINANCING ACTIVITIES
Purchase of Real Estate
<TABLE>
<S> <C>
Secured notes payable assumed in connection with purchase of
real estate............................................... $ 80,238
Real estate purchased in exchange of 867,751 Partnership
Units ("OP Units") of AIMCO Properties, L.P. (the
"Partnership")......................................... 29,339
--------
$109,577
========
</TABLE>
Purchase of Ambassador Apartments, Inc.
In May 1998, the Company acquired all of the common stock of Ambassador
Apartments, Inc. ("Ambassador"), par value $.01 per share, in exchange for
6,578,833 shares of AIMCO's Class A Common Stock, par value $.01 per share (the
"Class A Common Stock") with a recorded value of $251.3 million (see Note 3).
The aggregate purchase price consisted of the following:
<TABLE>
<S> <C>
Real estate................................................. $713,596
Investment in real estate partnerships...................... 2,290
Restricted cash............................................. 35,523
Accounts receivable......................................... 7,953
Deferred financing costs.................................... 4,359
Other assets................................................ 2,319
Secured notes payable....................................... 37,162
Secured tax-exempt bond financing........................... 334,881
Unsecured short-term financing.............................. 31,550
Accounts payable, accrued and other liabilities............. 2,513
Resident security deposits and prepaid rents................ 8,898
Minority interests in other partnerships.................... 5,752
Partners' Capital........................................... 251,274
</TABLE>
Property Held For Sale
During the nine months ended September 30, 1998, the Company (as defined in
Note 1) entered into sales agreements to sell four multifamily properties with a
net book value of $42,106. These assets were reclassified to property held for
sale.
Receipt of Notes Payable From Officers
During the nine months ended September 30, 1998, the Company issued notes
receivable from officers for a total of $16,636 in connection with their
purchase of 406,072 shares of Class A Common Stock. The notes receivable were
contributed to the Partnership in exchange for 406,072 OP Units.
Other
During the nine months ended September 30, 1998, the Partnership issued an
additional 194,208 OP Units with a recorded value of $4,045 in connection with
the purchase of certain partnership interests.
F-39
<PAGE> 510
AIMCO PROPERTIES, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOW -- (CONTINUED)
During the nine months ended September 30, 1998, the Company obtained
control of real estate partnerships that became consolidated. The non-cash
effects are as follows:
<TABLE>
<S> <C>
Real estate................................................. $22,089
Secured notes payable....................................... 4,679
Investment in and notes receivable from real estate
partnerships.............................................. 16,683
Accounts payable, accrued and other liabilities............. 727
</TABLE>
During the nine months ended September 30, 1998, AIMCO contributed certain
assets and liabilities to unconsolidated subsidiaries and unconsolidated
partnerships as follows:
<TABLE>
<S> <C>
Investment in unconsolidated subsidiaries................... $34,300
Investment in unconsolidated partnerships................... 3,361
Restricted cash............................................. 552
Accounts receivable......................................... 13,972
Other assets................................................ 18,719
Accounts payable, accrued and other liabilities............. 62,011
</TABLE>
1997 NON CASH INVESTING AND FINANCING ACTIVITIES
Purchase of Real Estate
<TABLE>
<S> <C>
Secured notes payable assumed in connection with purchase of
real estate............................................... $ 63,446
Real estate purchased in exchange for 1,897,794 OP Units.... 55,906
--------
$119,352
========
</TABLE>
Purchase of 53.3% Interest in NHP Incorporated
In May 1997, the Company acquired 2,866,071 shares of NHP Incorporated's
("NHP") common stock in exchange for 2,142,857 shares of AIMCO'S Class A Common
Stock with a recorded value of $57,321. Subsequent to the purchase, the Company
contributed the NHP common stock to AIMCO/NHP Holdings, Inc. ("ANHI"), an
unconsolidated subsidiary formed in April 1997, in exchange for all of the
shares of ANHI's nonvoting preferred stock, representing a 95% economic interest
in ANHI.
Concurrently with this contribution, ANHI obtained a loan in the amount of
$72,600, and used the proceeds from the loan to purchase 3,630,002 additional
shares of NHP common stock. In August and September 1997, AIMCO purchased
5,717,000 shares of NHP common stock from ANHI for an aggregate purchase price
of $114,397, and purchased an additional 434,049 shares of NHP common stock from
third parties, pursuant to a stock purchase agreement. Upon the completion of
these transactions, AIMCO and ANHI owned a combined total of 6,930,122 shares of
NHP common stock, representing 53.3% of NHP's outstanding common stock as of
September 30, 1997.
F-40
<PAGE> 511
AIMCO PROPERTIES, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOW -- (CONTINUED)
Purchase of General and Limited Partnership Interests, Captive Insurance
Subsidiary and Other Assets
The historical cost of the assets and the liabilities assumed in connection
with the purchase of NHP Partners, Inc., NHP Partners Two Limited Partners and
their subsidiaries (the "NHP Real Estate Companies") were as follows:
<TABLE>
<S> <C>
Real estate, net............................................ $ 174,545
Investment in real estate partnerships...................... 89,526
Restricted cash............................................. 6,051
Accounts receivable......................................... 12,743
Other assets................................................ 3,347
Secured notes payable....................................... (140,270)
Accounts payable, accrued and other liabilities............. (50,153)
Accrued management contract liability....................... (106,615)
Resident security deposits and prepaid rent................. (1,025)
</TABLE>
Property Held for Sale
In the third quarter of 1997, the Company entered into contracts to sell
five apartment communities with a net book value of $19,100. These assets were
reclassified to property held for sale.
Issuance of Notes Receivable Due from Officers
During the nine months ended September 30, 1997, the Company issued notes
receivable from officers for a total of $33,700 in connection with their
purchase of 1,125,000 shares of Class A Common Stock. The notes receivable were
contributed to the Partnership in exchange for 1,125,000 OP Units.
Other
During the nine months ended September 30, 1997, the Company reclassified
$1,323 of other assets to real estate as a purchase price allocation adjustment.
In addition, the Company wrote off $4,065 of other assets allocable to limited
partners in partnerships controlled by the Company, to minority interests.
During the nine months ended September 30, 1997, the Partnership issued an
additional 198,218 OP Units with a recorded value of $6,653 in connection with
the purchase of certain partnership interests in 1996.
During the nine months ended September 30, 1997, the Company recorded
unrealized gains on investments held for sale of $1,175.
F-41
<PAGE> 512
AIMCO PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(UNAUDITED)
NOTE 1 -- ORGANIZATION
AIMCO Properties, L.P. (the "Partnership" and, together with AIMCO (as
defined below), consolidated entities and majority-owned subsidiaries, the
"Company"), a Delaware limited partnership, was formed on May 16, 1994 to
conduct the business of acquiring, developing, leasing and managing multi-family
apartment properties. Apartment Investment and Management Company, a Maryland
corporation ("AIMCO"), is the General Partner (through its wholly owned
subsidiary, AIMCO-GP, Inc., a Delaware corporation) and Special Limited Partner
(through its wholly owned subsidiary, AIMCO-LP, Inc., a Delaware corporation),
as defined in the Third Amended and Restated Agreement of Limited Partnership of
AIMCO Properties, L.P., as amended (the "Agreement"), of the Partnership. In
addition, AIMCO is the holder of all Partnership Preferred Units ("Preferred
Units") outstanding in the Partnership. The Limited Partners of the Partnership
are individuals or entities that own limited partnership units in the
Partnership ("OP Units"). After holding the OP Units for one year, the Limited
Partners have the right to redeem their OP Units for cash, subject to the prior
right of AIMCO to elect to acquire some or all of the OP Units tendered for
redemption in exchange for shares of Class A Common Stock, on a one-for-one
ratio.
The Partnership, through its operating divisions and subsidiaries, was
formed to hold and conduct substantially all of AIMCO's operations and manages
the daily operations of AIMCO's business and assets. All employees are employees
of the Partnership; AIMCO has no employees.
According to the terms of the Agreement, the capital structure of the
Partnership, in terms of the OP Units owned by the General Partner, the Special
Limited Partner and the Preferred Units outstanding, is generally required to
replicate the capital structure of AIMCO, with the only difference being the
Partnership has additional OP Units outstanding which are owned by the Limited
Partners. Therefore, AIMCO is required to contribute to the Partnership all
proceeds from offerings of its Class A Common Stock, preferred stock, or any
other equity offerings. In addition, substantially all of AIMCO's assets must be
owned through the Partnership; therefore, AIMCO is generally required to
contribute to the Partnership all assets acquired. In exchange for the
contribution of offering proceeds or assets, AIMCO receives additional interests
in the Partnership with similar terms (i.e., if AIMCO contributes proceeds of a
preferred stock offering, AIMCO receives Preferred Units).
AIMCO frequently consummates transactions for the benefit of the
Partnership. For legal, tax or other business reasons, AIMCO may hold title or
ownership of certain assets until they can be transferred to the Partnership.
However, the Partnership has a controlling financial interest in all of AIMCO's
assets in the process of transfer to the Partnership.
At September 30, 1998, the Partnership had 54,143,507 OP Units outstanding,
750,000 Class B Preferred Units outstanding, 2,400,000 Class C Preferred Units
outstanding, 4,200,000 Class D Preferred Units outstanding, 4,050,000 Class G
Preferred Units outstanding, and 2,000,000 Class H Preferred Units outstanding.
As of September 30, 1998, the Partnership owned or controlled 57,561 units
in 207 apartment properties (the "Owned Properties"), held an equity interest in
75,050 units in 481 apartment properties (the "Equity Properties") and managed
67,929 units in 355 apartment properties for third party owners and affiliates
(the "Managed Properties" and, together with the Owned Properties and Equity
Properties, the "AIMCO Properties"), bringing the total managed portfolio to
200,540 units in 1,043 apartment properties. The apartment properties are
located in 42 states, the District of Columbia and Puerto Rico.
F-42
<PAGE> 513
AIMCO PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2 -- BASIS OF PRESENTATION
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Partnership and Partnership subsidiaries and limited partnerships in which
the Partnership has a controlling financial interest. Interests held by limited
partners in real estate partnerships controlled by the Partnership are reflected
as Minority Interests.
All significant intercompany balances and transactions have been eliminated
in consolidation.
Investments in Unconsolidated Subsidiaries
The Partnership has investments in numerous subsidiaries. Investments in
entities in which the Partnership does not have control are accounted for under
the equity method. Under the equity method, the Partnership's pro-rata share of
the earnings or losses of the entity for the periods being presented is included
in equity in earnings from unconsolidated subsidiaries.
Investments in and Notes Receivable from Real Estate Partnerships
The Company owns general and limited partnership interests in numerous
partnerships that own multi-family apartment properties. Investments in real
estate partnerships in which the Company does not have control are accounted for
under the equity method. Under the equity method, the Company's pro-rata share
of the earnings or losses of the entity for the periods being presented is
included in equity in losses of unconsolidated partnerships.
Redeemable Partnership Units
The Partnership accounts for the outstanding common units not held by AIMCO
as redeemable partnership units. These units are classified outside of permanent
partners' capital in the accompanying balance sheet. The units are initially
recorded at their fair value and subsequently adjusted based on the fair value
at the balance sheet date as measured by the closing price of AIMCO's common
stock on that date by the total number of units outstanding.
Comprehensive Income
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income ("SFAS
130"), which provides guidance with respect to the calculation and presentation
of comprehensive income. Comprehensive income includes all transactions
affecting partners' capital, including the traditional measure of net income,
and excluding contributions from and distributions to OP Unitholders. Under SFAS
130, companies are required to present comprehensive income and its components
on the face of the income statement and as a component of partners' capital on
the face of the balance sheet. As required, the Partnership adopted SFAS 130 as
of January 1, 1998 and restated the components of partners' capital for prior
periods.
Interim Information
The accompanying unaudited consolidated financial statements of the
Partnership as of September 30, 1998 and for the three and nine months ended
September 30, 1998 and 1997 have been prepared in accordance with generally
accepted accounting principles for interim financial information. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments considered necessary for a fair presentation have
been included and all such adjustments are of a recurring nature.
F-43
<PAGE> 514
AIMCO PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The consolidated financial statements should be read in conjunction with
the audited consolidated financial statements and notes thereto for the year
ended December 31, 1997 included in the Registration Statement on Form 10/A. It
should be understood that accounting measurements at interim dates inherently
involve greater reliance on estimates than at year-end. The results of
operations for the interim periods presented are not necessarily indicative of
the results for the entire year.
Reclassification
Certain reclassifications have been made to prior period financial
statements to conform to the current period presentation.
NOTE 3 -- REAL ESTATE
In May 1998, AIMCO acquired, through a merger, Ambassador Apartments, Inc.
("Ambassador"), resulting in the issuance of up to 6,578,833 shares of Class A
Common Stock. Ambassador owned 52 apartment communities with a total of 15,728
units located in Arizona, Colorado, Florida, Georgia, Illinois, Tennessee and
Texas, and managed one property containing 252 units for an unrelated third
party. AIMCO contributed the assets and liabilities of Ambassador to the
Partnership in exchange for 6,578,833 OP Units.
In addition to the merger with Ambassador, during the nine months ended
September 30, 1998, the Partnership purchased 19 apartment communities
containing 4,273 apartment units, as described below:
<TABLE>
<CAPTION>
DATE NUMBER
ACQUIRED PROPERTY LOCATION OF UNITS
- -------- -------- -------- --------
<C> <S> <C> <C>
1/98.. Crossings at Bell Amarillo, TX 160
2/98.. Steeplechase Tyler, TX 484
3/98.. Casa Anita Phoenix, AZ 224
3/98.. San Marina Phoenix, AZ 399
3/98.. Cobble Creek Tucson, AZ 301
3/98.. Rio Cancion Tucson, AZ 379
3/98.. Sundown Village Tucson, AZ 330
4/98.. Arbor Station Montgomery, AL 264
4/98.. Heather Ridge Arlington, TX 72
5/98.. Landmark Albuquerque, NM 101
6/98.. Citrus Grove Redlands, CA 198
6/98.. Villa La Paz Sun City, CA 96
7/98.. Sunset Village Oceanside, CA 114
7/98.. Sunset Citrus Vista, CA 97
7/98.. Rancho Escondido Escondido, CA 334
8/98.. Atrium Plantation, FL 210
8/98.. Colony Bradenton, FL 166
9/98.. Fisherman's Landing Hillsborough County, FL 256
9/98.. Sun Lake Brandon, FL 88
-----
4,273
=====
</TABLE>
The aggregate consideration paid by the Partnership of $886.1 million
(including Ambassador) consisted of $153.2 million in cash, 867,751 OP Units to
limited partners valued at $29.3 million, 6,578,833 OP Units to the Special
Limited Partners valued at $251.3 million and the assumption of $452.3 million
of secured long-term indebtedness. The cash portions of the acquisitions were
funded with borrowings under the Partnership's revolving credit facilities.
F-44
<PAGE> 515
AIMCO PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During the nine months ended September 30, 1998, the Partnership sold two
apartment communities containing an aggregate of 702 apartment units for
aggregate sales price of $18.3 million, less selling costs of $0.3 million. The
Partnership recognized aggregate gains of $3.4 million on the sales. The
Partnership used the cash proceeds to pay down a portion of the outstanding
balance on the BOA Credit Facility (as defined in Note 9) and to pay closing
costs.
As of September 30, 1998, the Partnership's management has indicated its
intent to sell six properties. Accordingly, these properties have been
reclassified from real estate to property held for sale on the consolidated
balance sheet.
NOTE 4 -- INTEREST RATE LOCK AGREEMENTS
From time to time, the Partnership enters into interest rate lock
agreements with major investment banking firms, in anticipation of refinancing
debt. Interest rate lock agreements related to planned refinancing of identified
variable rate indebtedness are accounted for as anticipatory hedges. Upon the
refinancing of such indebtedness, any gain or loss associated with the
termination of the interest rate lock agreement is deferred and recognized over
the life of the refinanced indebtedness. In order for the interest rate lock to
qualify as an anticipatory hedge, the following criteria must be met: (a) the
refinance being hedged exposes the Partnership to interest rate risk; (b) the
interest rate lock is designated as a hedge; (c) the significant characteristics
and expected terms of the refinance are identified; and (d) it is probable that
the refinance will occur. The Partnership believes that all four of the above
qualifications have been met for interest rate lock agreements previously
entered into. In the event that any of the above qualifications are not met, the
interest rate lock agreement will not qualify as an anticipatory hedge, and any
gain or loss realized on the interest rate lock agreement will be recognized in
the current period's earnings.
NOTE 5 -- COMMITMENTS
High Performance Units
In January 1998, the Partnership sold 15,000 Class I High Performance
Partnership Units (the "High Performance Units") to a partnership owned by
fourteen members of AIMCO's senior management, and to three of its independent
directors for $2.1 million in cash. The High Performance Units have nominal
value unless the total return of AIMCO's Class A Common Stock (defined as
dividend income plus share price appreciation), over the three year period
ending December 31, 2000, is at least 30% and exceeds the industry average, as
determined by a peer group index, by at least 15% (the "Total Return"). At the
conclusion of the three year period, if the Total Return of AIMCO's Class A
Common Stock satisfies these criteria, the holders of the High Performance Units
will receive distributions and allocations of income and loss from the
Partnership in the same amounts and at the same times as would holders of a
number of OP Units equal to the quotient obtained by dividing (i) the product of
(a) 15% of the amount by which the Total Return of AIMCO's Class A Common Stock
over the three year period exceeds the greater of 115% of a peer group index or
30% (such excess being the "Excess Return"), multiplied by (b) the weighted
average market value of the Partnership's outstanding OP Units, by (ii) the
market value of one share of Class A Common Stock at the end of the three year
period. The three-year measurement period will be shortened in the event of a
change of control of the Company. Unlike OP Units, the High Performance Units
are not redeemable or convertible into Class A Common Stock, unless a change of
control of the Company occurs. Because there is substantial uncertainty that the
High Performance Units will have more than nominal value due to the required
Total Return over the three-year term, the Partnership has not recorded any
value to the High Performance Units. If the measurement period had ended
September 30, 1998, the Excess Return would have been $16.5 million and the
value of the High Performance Units would have been $2.5 million, and such High
Performance Units would have had no dilutive effect on net income per unit.
F-45
<PAGE> 516
AIMCO PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 -- PARTNERS' CAPITAL
Issuance of Preferred Units
During 1998, AIMCO issued the following:
<TABLE>
<CAPTION>
NET OPTION OF ANNUAL LIQUIDATION
SHARES PROCEEDS REDEEM- DISTRIBUTION PREFERENCE
DATES ISSUED (MILLIONS) ABLE ON RATE RATE
---------- --------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Class D Preferred Stock.... Feb., 1998 4,200,000 $101.5 Feb., 2003 $ 2.1875 $25 per unit
Class G Preferred Stock.... Jul., 1998 4,050,000 $ 98.0 Jul., 2008 $2.34375 $25 per unit
Class H Preferred Stock.... Aug., 1998 2,000,000 $ 48.1 Aug., 2003 $ 2.375 $25 per unit
</TABLE>
The proceeds were contributed by AIMCO to the Partnership and the
Partnership issued to AIMCO the same number of economically equivalent Class D,
G and H Preferred Units. On or after the above listed redemption dates, AIMCO
may redeem shares of Class D, G or H Preferred Stock, in whole or in part, at a
cash redemption price equal to 100% of the above listed Class D, G and H
Liquidation Preferences plus all accrued and unpaid distributions to the date
fixed for redemption. Upon any such redemption, an equivalent number of Class D,
G and H Preferred Units shall be redeemed.
During the nine months ended September 30, 1998, AIMCO sold 442,126 shares
of Class A Common Stock to certain members of AIMCO's management, at an average
price of $36.90 per share. In payment for the stock, such members of management
executed notes payable to AIMCO totaling $16.3 million, which bear interest at a
fixed rate of 7.0% per annum, payable quarterly, and are due in ten years. The
notes are secured by the stock purchased and are recourse as to 25% of the
original amount borrowed. The notes receivable were contributed by AIMCO to the
Partnership in exchange for 442,126 OP Units. During the nine months ended
September 30, 1998, the Partnership received payments on notes payable from
AIMCO's management of $8.1 million.
Warrants
On December 2, 1997, AIMCO issued warrants (the "Oxford Warrants")
exercisable to purchase up to an aggregate of 500,000 shares of Class A Common
Stock at $41 per unit. The Oxford Warrants were issued to affiliates of Oxford
Realty Financial Group, Inc., a Maryland corporation ("Oxford"), in connection
with the amendment of certain agreements pursuant to which the Partnership
manages properties controlled by Oxford or its affiliates. The actual number of
shares of Class A Common Stock for which the Oxford Warrants will be exercisable
is based on certain performance criteria with respect to the Company's
management arrangement with Oxford for each of the five years ending December
31, 2001. The Oxford Warrants are exercisable for six years after the
determination of such criteria for each of the five years. The Oxford Warrants
were valued at $1.2 million using the "Black-Scholes" model, which was
additional consideration paid to acquire the property management contracts
related to the properties controlled by Oxford or its affiliates. The Oxford
Warrants were issued in a private transaction exempt from registration under the
Securities Act pursuant to Section 4(2).
Unit Repurchases
During the nine months ended September 30, 1998, the Partnership
repurchased 299,600 OP Units from AIMCO and, in turn, AIMCO repurchased 299,600
shares of Class A Common Stock on the open market for $11.0 million, or an
average price of $36.68 per share.
F-46
<PAGE> 517
AIMCO PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7 -- EARNINGS PER OP UNIT
The following table illustrates the calculation of basic and diluted
earnings per OP Unit for the three and nine months ended September 30, 1998 and
1997 (in thousands, except per unit data):
<TABLE>
<CAPTION>
THREE THREE
MONTHS MONTHS
ENDED ENDED
SEPT. 30, SEPT. 30,
1998 1997
-------------- --------------
<S> <C> <C>
Numerator:
Net income............................................... $17,745 $ 7,963
Preferred Unit distributions............................. (7,670) (835)
------- -------
Numerator for basic and diluted earnings per OP
Unit -- Income attributable to OP Unitholders............ $10,075 $ 7,128
======= =======
Denominator:
Denominator for basic earnings per OP Unit -- weighted
Average number of shares of OP Units outstanding...... 52,896 27,969
Effect of dilutive securities............................ 627 185
------- -------
Denominator for dilutive earnings per OP Unit.............. 53,523 28,154
======= =======
Basic earnings per common OP Unit:
Operations............................................... $ 0.18 $ 0.26
Gain on disposition of properties........................ 0.01 (0.01)
Extraordinary item....................................... -- --
------- -------
Total............................................ $ 0.19 $ 0.25
======= =======
Diluted earnings per OP Unit:
Operations............................................... $ 0.18 $ 0.26
Gain on disposition of properties........................ 0.01 (0.01)
Extraordinary item....................................... -- --
------- -------
Total............................................ $ 0.19 $ 0.25
======= =======
</TABLE>
F-47
<PAGE> 518
AIMCO PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPT. 30, SEPT. 30,
1998 1997
----------- -----------
<S> <C> <C>
Numerator:
Net income............................................... $ 56,269 $19,427
Preferred Unit distributions............................. (16,320) (835)
-------- -------
Numerator for basic and diluted earnings per OP
Unit -- Income attributable to OP Unitholders............ $ 39,949 $18,592
======== =======
Denominator:
Denominator for basic earnings per OP Unit -- weighted
Average number of OP Units outstanding................ 50,420 23,648
Effect of dilutive securities............................ 124 666
-------- -------
Denominator for dilutive earnings per OP Unit.............. 50,544 24,314
======== =======
Basic earnings per OP Unit:
Operations............................................... $ 0.74 $ 0.79
Gain on disposition of properties........................ 0.06 (0.01)
Extraordinary item....................................... -- (0.01)
-------- -------
Total............................................ $ 0.80 $ 0.77
======== =======
Diluted earnings per OP Unit:
Operations............................................... $ 0.73 $ 0.79
Gain on disposition of properties........................ 0.06 (0.01)
Extraordinary item....................................... -- (0.01)
-------- -------
Total............................................ $ 0.79 $ 0.77
======== =======
</TABLE>
NOTE 8 -- PRO FORMA FINANCIAL STATEMENTS
During the nine months ended September 30, 1998, the Company purchased
Ambassador. During the nine months ended September 30, 1997, the Company
purchased the NHP Real Estate Companies and, through an unconsolidated
subsidiary, purchased a 53.3% interest in NHP Incorporated ("NHP"). The
following unaudited Pro Forma Consolidated Statements of Operations for the nine
months ended September 30, 1998 and 1997, have been prepared as if the above
described transactions had occurred at the beginning of the period being
reported on. The following Pro Forma Financial Information is based, in part, on
the following historical financial statements: (i) the unaudited financial data
of the Company for the nine months ended September 30, 1998 and 1997; (ii) the
unaudited Consolidated Financial Statements of Ambassador for the four months
ended April 30, 1998 and the nine months ended September 30, 1997; (iii) the
unaudited Consolidated Financial Statements of NHP for the nine months ended
September 30, 1997 (which have been restated to reflect NHP's subsidiary, WMF
Group Ltd., as a discontinued operation), and (iv) the unaudited Combined
Financial Statements of the NHP Real Estate Companies for the five months ended
May 31, 1997.
F-48
<PAGE> 519
AIMCO PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The pro forma financial statements are not necessarily indicative of what
the Company's results of operations would have been assuming the completion of
the described transactions at the beginning of the periods indicated, nor does
it purport to project the Company's results of operations for any future period.
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER UNIT DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE FOR THE NINE
MONTHS MONTHS
ENDED ENDED
SEPT. 30, 1998 SEPT. 30, 1997
-------------- --------------
<S> <C> <C>
Rental property operations.................................. $109,315 $74,988
Partnerships share of income from service company
business.................................................. 5,668 1,999
Net income.................................................. $ 59,942 $17,500
======== =======
Net income attributable to Preferred Unitholders............ $ 16,320 $ 835
======== =======
Net income attributable to OP Unitholders................... $ 43,622 $16,665
======== =======
Basic earnings per OP Unit.................................. $ 0.79 $ 0.53
======== =======
Diluted earnings per OP Unit................................ $ 0.79 $ 0.53
======== =======
Weighted average OP Units outstanding....................... 55,036 31,223
======== =======
Weighted average OP Units and OP Unit equivalents
Outstanding............................................... 55,250 31,889
======== =======
</TABLE>
NOTE 9 -- SUBSEQUENT EVENTS
Insignia Merger
On October 1, 1998, AIMCO, through a merger, acquired all of the
multifamily business of Insignia Financial Group, Inc., a Delaware corporation
("Insignia") (the "Insignia Merger"). As merger consideration, AIMCO issued to
former Insignia stockholders 8.4 million shares of its Class E Cumulative
Convertible Preferred Stock (the "Class E Preferred Stock") and reserved an
additional 0.5 million shares for options and warrants, in the aggregate. In
addition, approximately $531 million in outstanding debt and other liabilities
of Insignia and its subsidiaries became obligations of AIMCO and its
subsidiaries. AIMCO contributed the substantial majority of the assets and
liabilities acquired in the Insignia Merger to the Partnership in exchange for
8.4 million Class E Preferred Units, which are the substantial economic
equivalent of Class E Preferred stock.
Holders of Class E Preferred Stock, which have the same rights as holders
of Class E Preferred Units, will be entitled to receive the same cash dividends
per share as holders of Class A Common Stock. In addition, holders of Class E
Preferred Stock, on the record date for payment to be set by AIMCO's board of
directors, will be entitled to receive a special distribution in an aggregate
amount of $50 million (the "Special Dividend"). After January 15, 1999, if any
portion of the Special Dividend or any other dividend has yet to be declared and
paid to the holders of Class E Preferred Stock, no dividends may be declared or
paid or set apart for payment by AIMCO on the Class A Common Stock.
On the close of business on the day on which the Special Dividend (or any
remaining unpaid portion thereof) is paid to the holders of the Class E
Preferred Stock, each share of Class E Preferred Stock will be automatically
converted into one share of Class A Common Stock without any action on the part
of AIMCO or the holders of such share of Class E Preferred Stock (the
"Conversion Date"). If AIMCO at any time following the consummation of the
Insignia Merger pays a dividend or makes a distribution, subdivides,
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AIMCO PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
combines, reclassifies, issues rights, options or warrants or makes any other
distribution in securities in relation to its outstanding Class A Common Stock,
then AIMCO will contemporaneously do the same with respect to the Class E
Preferred Stock.
In addition to the issuance of the Class E Preferred Stock, on October 1,
1998, the Company entered into a $300 million senior unsecured interim term loan
agreement with an affiliate of Lehman Brothers, Inc. (the "Interim Term Loan
Agreement"). The term loan matures in one year and bears interest at a rate per
annum equal to the greatest of (a) the Prime Rate in effect on such day, (b) the
Base CD Rate in effect on such day plus 1% and (c) the Federal Funds Effective
Rate in effect on such day plus 1/2 of 1%. The Company used the proceeds to
refinance existing indebtedness outstanding of Insignia at the time of the
merger.
IPT Merger Agreement
As a result of the Insignia Merger and contributions by AIMCO, the
Partnership currently owns approximately 30% of the outstanding units of
partnership interest of Insignia Properties, L.P., a Delaware limited
partnership ("IPLP"). In addition, AIMCO owns approximately 51% of the
outstanding shares of beneficial interest of Insignia Properties Trust, a
Maryland REIT ("IPT"). As of September 30, 1998, IPLP primarily owns general and
limited partnership interests in real estate limited partnerships that own an
aggregate of 339 Properties. AIMCO and IPT have entered into a merger agreement,
dated as of October 1, 1998 (the "IPT Merger Agreement"), pursuant to which IPT
will merge with AIMCO, or one of its subsidiaries (the "IPT Merger"). The IPT
Merger is expected to close in January 1999. As a result of the IPT Merger,
AIMCO will acquire the remaining approximately 70% interest in IPLP that is
currently owned by IPT. AIMCO will contribute the 70% interest in IPLP to the
Partnership in exchange for OP Units. Subsequent to the IPT Merger and
contribution by AIMCO, the Partnership will own 100% of IPLP.
Issuance of Units
In November 1998, AIMCO issued 1,000,000 shares of Class J Cumulative
Convertible Preferred Stock, par value $0.01 per share ("Class J Preferred
Stock") in a private placement for $100.0 million. AIMCO contributed the
proceeds to the Partnership in exchange for 1,000,000 Class J Cumulative
Convertible Preferred Units (the "Class J Preferred Units"). In addition, the
Partnership purchased 250,000 shares of Class J Preferred Stock from AIMCO in
exchange for a note payable of $25 million and issued an additional 250,000
Class J Preferred units to AIMCO. The holders of Class J Preferred Stock shall
be entitled to receive, when and as declared by the AIMCO board of directors,
dividends equal to (i) 7% per annum of the per share Liquidation Preference for
the period beginning on and including the Issue Date and lasting until November
15, 1998; (ii) 8% per annum of the per share Liquidation Preference for the
period beginning on and including November 15, 1998 and lasting until November
15, 1999; (iii) 9% per annum of the per share Liquidation Preference for the
period beginning on and including November 15, 1999 and lasting until November
15, 2000; (iv) 9.5% per annum of the per share Liquidation Preference
thereafter. Such dividends shall be cumulative from the Issue Date, whether or
not in any Dividend Period or Periods such dividends shall be declared or there
shall be funds of the Company legally available for the payment of such
dividends. AIMCO may convert any or all of the Class J Preferred Stock into
Class A Common Stock at a conversion price of $40 (equivalent to a conversion
rate of 2.5 shares of Class A Common Stock for each share of Class J Preferred
Stock) (a) after November 6, 2002, if the market price of the Class A Common
Stock in the five most recent Trading Days is equal to or greater than $40 or;
(b) at any time on or prior to November 6, 2002, if the Internal Rate of Return
exceeds 12.5%.
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AIMCO PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Purchase of Properties:
Subsequent to September 30, 1998, the Partnership purchased one multifamily
property with a total of 219 units for total consideration of $8.1 million,
consisting of $8.1 million in cash. The multifamily property is located in
Arizona.
Distribution Declared
On October 22, 1998, the AIMCO-GP, Inc. board of directors and AIMCO, as
the General Partner, declared a cash distribution of $0.5625 per unit of OP Unit
for the quarter ended September 30, 1998, payable on November 13, 1998 to OP
Unitholders of record on November 6, 1998.
The AIMCO-GP, Inc. board of directors and AIMCO, as the General Partner,
also declared a cash distribution of $0.225 per unit on the Class E Preferred
Units for the period from October 1, 1998 through November 6, 1998, the record
date for the Class E Preferred Unit. The distribution was paid on November 13,
1998.
Revised Debt Agreement
On October 1, 1998, the Company amended and restated its credit agreement
with Bank of America National Trust and Savings Association ("Bank of America")
and BankBoston, N.A. The credit agreement was further amended on November 6,
1998 (the "First Amendment"). The credit agreement now provides a revolving
credit facility of up to $100 million, including a swing line of up to $30
million (collectively with the First Amendment, the "BOA Credit Facility").
The Partnership is the borrower under the BOA Credit Facility, but all
obligations thereunder are guaranteed by AIMCO and certain subsidiaries. The
annual interest rate under the BOA Credit Facility is based on either LIBOR or a
base rate which is the higher of Bank of America's reference rate or 0.5% over
the federal funds rate, plus, in either case, an applicable margin. The margin
ranges between 1.25% and 2.0% in the case of LIBOR-based loans, and between
negative 0.25% and positive 0.5% in the case of base rate loans, depending upon
a ratio of the Company's consolidated unsecured indebtedness to the value of
certain unencumbered assets. The BOA Credit Facility matures on September 30,
1999 unless extended, at the discretion of the lenders. The BOA Credit Facility
provides for the conversion of the revolving facility into a three-year term
loan. The availability of funds to the Company under the BOA Credit Facility is
subject to certain borrowing base restrictions and other customary restrictions,
including compliance with financial and other covenants thereunder. The
financial covenants contained in the BOA Credit Facility require the Company to
maintain a ratio of debt to gross asset value of no more than 0.55 to 1.0, an
interest coverage ratio of 2.25 to 1.0 and a fixed charge coverage ratio of at
least 1.6 to 1.0 through December 31, 1998, 1.7 to 1.0 from January 1, 1999
through June 30, 1999, and 1.8 to 1.0 thereafter. In addition, the BOA Credit
Facility limits the Company from distributing more than 80% of its Funds From
Operations (as defined) (or such amounts as may be necessary for AIMCO to
maintain its status as a REIT) to holders of OP Units, imposes minimum net worth
requirements and provides other financial covenants related to certain
unencumbered assets.
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APPENDIX A
GLOSSARY
Unless the context requires otherwise, the following terms used in this
Prospectus have the respective meanings set forth below:
"1994 Plan" means the 1994 Stock Option Plan of AIMCO.
"1996 Dispositions" means the sale of 4 properties in August 1996 by the
Company.
"1996 Hedges" means hedging agreements entered into in 1996 between the
AIMCO Operating Partnership and a New York investment banking company in
connection with a refinancing of certain indebtedness.
"1996 Plan" means the 1996 Stock Award and Incentive Plan of AIMCO.
"1997 Acquisitions" means the Company's investments in unconsolidated
subsidiaries and real estate partnerships during 1997.
"1997 Housing Act" means the Multifamily Assisted Housing Reform and
Affordability Act of 1997.
"1997 Plan" means the 1997 Stock Award and Incentive Plan of AIMCO.
"1997 Sold Properties" means the sale of 5 properties in 1997 by the
Company.
"1998 Acquisitions" means the Company's acquisition of the Ambassador
Operating Partnership and the purchase of 19 properties during the first nine
months of 1998.
"1998 Sold Properties" means the sale of 2 properties in 1998 by the
Company.
"2530 Committee" means the HUD's Multifamily Participation Review
Committee.
"ACMs" means asbestos-containing materials.
"ADA" means the Americans with Disabilities Act of 1990.
"affordable" means, with respect to apartment units or residential
properties, that such units or properties benefit from an interest rate or
rental subsidy or are otherwise subject to governmental programs intended to
provide housing to persons with low or moderate incomes.
"Agreement" means the Third Amended and Restated Agreement of Limited
Partnership of AIMCO Properties, L.P.
"AIMCO" means Apartment Investment and Management Company, a Maryland
corporation.
"AIMCO Board" means the board of directors of AIMCO.
"AIMCO GP" means AIMCO-GP, Inc., a wholly owned subsidiary of AIMCO and the
general partner of the AIMCO Operating Partnership.
"AIMCO Index Price" means the average trading price of Class A Common Stock
over the 20-day period ended five trading days prior to the effective time of
the Insignia Merger, but in no event greater than $38.00.
"AIMCO IPO" means AIMCO's initial public offering of Class A Common Stock
in July 1994.
"AIMCO Operating Partnership" means AIMCO Properties, L.P., a Delaware
limited partnership.
"AIMCO Operating Partnership Agreement" means the agreement of limited
partnership of the AIMCO Operating Partnership.
"AIMCO Parties" means the AIMCO Operating Partnership, [AIMCO-GP], AIMCO
and AIMCO/ PAM Properties, L.P.
"AIMCO Properties" means the Managed Properties, Owned Properties and
Equity Properties.
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"AIMCO Stock" means the Class A Common Stock and the Preferred Stock.
"Ambassador" means Ambassador Apartments, Inc.
"Ambassador Common Stock" means the common stock, par value $.01 per share,
of Ambassador.
"Ambassador Merger" means the merger of Ambassador with and into AIMCO on
May 8, 1998.
"Ambassador Merger Agreement" means the agreement and plan of merger, dated
December 23, 1997, entered into by AIMCO and Ambassador.
"Ambassador Operating Partnership" means Ambassador Apartments, L.P., a
Delaware limited partnership.
"AMIT" means Angeles Mortgage Investment Trust.
"AMTI" means alternative minimum taxable income.
"ANHI" means AIMCO/NHP Holdings, Inc.
"ANPI" means AIMCO/NHP Properties, Inc.
"APB 15" means the Accounting Principles Board Opinion No. 15.
"APB 25" means the Accounting Principles Board Opinion No. 25 -- Accounting
for Stock Issued to Employees.
"Assignee" means any person to whom one or more OP Units have been
transferred.
"Bank of America" means Bank of America National Trust and Savings
Association.
"Base Rate" means quarterly cash dividends per share equal to $1.78125.
"BOA Credit Facility" means the $100 million unsecured revolving credit
facility entered into in October 1, 1998 between the Company, Bank of America,
and BankBoston, N.A.
"Book-Tax Difference" means, generally, the difference between the fair
market value of the contributed property at the time of contribution, and the
adjusted tax basis of such property at the time of contribution.
"Built-in Gain" means to be subject to tax at the highest regular corporate
tax rate on the excess, if any, of the fair market value over the adjusted basis
of any particular asset as of the beginning of a ten-year period.
"business combinations" has the meaning given such term in the MGCL.
"Bylaws" means the bylaws of AIMCO.
"California Actions" means the two complaints filed in Superior Court of
the State of California against the Company and the J.W. English Companies.
"Capital Account" has the meaning given to such term in the AIMCO Operating
Partnership Agreement.
"capital assets" means property held for investment.
"Capital Replacement" means capitalized spending which maintains a
property.
"Charter" means AIMCO's charter.
"CK" means CK Services, Inc.
"Class A Common Stock" means the Class A Common Stock, par value $.01 per
share, of AIMCO.
"Class B Parity Stock" means capital stock of AIMCO that ranks on parity
with Class B Preferred Stock with respect to payments of dividends or upon
liquidation, dissolution, winding up or otherwise.
"Class B Partnership Preferred Units" means the Class B Partnership
Preferred Units of the AIMCO Operating Partnership.
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"Class B Preferred Ownership Limit" means a number of shares of Class B
Preferred Stock with a value equal to the excess of (i) 8.7% (or 15% in the case
of certain pension trusts described in the Code, investment companies registered
under the Investment Company Act of 1940 and Mr. Considine) of the aggregate
value of all shares of capital stock of AIMCO over (ii) the aggregate value of
all shares of capital stock of AIMCO other than Class B Preferred Stock that are
owned by such holder.
"Class B Preferred Stock" means the Class B Cumulative Convertible
Preferred Stock, par value $.01 per share, of AIMCO.
"Class C Junior Stock" means Common Stock and any other class or series of
capital stock of AIMCO, if, pursuant to the specific terms of such class or
series of stock, the holders of the Class C Preferred Stock are entitled to the
receipt of dividends or of amounts distributable upon liquidation, dissolution,
and winding-up in preference or priority to the holders of shares of such class
or series.
"Class C Liquidation Preference" means the liquidation preference of $25
per share on the Class C Preferred Stock.
"Class C Parity Stock" means the Class B Preferred Stock, the Class D
Preferred Stock, the Class G Preferred Stock, the Class H Preferred Stock, the
Class J Preferred Stock and any other class or series of capital stock of AIMCO,
if, pursuant to the specific terms of such class of stock or series, the holders
of such class of stock or series and the Class C Preferred Stock shall be
entitled to the receipt of dividends and of amounts distributable upon
liquidation, dissolution or winding up in proportion to their respective amounts
of accrued and unpaid dividends per share or liquidation preferences, without
preference or priority one over the other.
"Class C Partnership Preferred Units" means the Class C Partnership
Preferred Units of the AIMCO Operating Partnership.
"Class C Preferred Stock" means the Class C Cumulative Preferred Stock, par
value $.01 per share, of AIMCO.
"Class C Senior Stock" means any class or series of capital stock of AIMCO,
if, pursuant to the specific terms of such class of stock or series, the holders
of such class or series shall be entitled to the receipt of dividends or amounts
distributable upon liquidation, dissolution or winding up in preference or
priority to the holders of the Class C Preferred Stock.
"Class D Junior Stock" means Common Stock and any other class or series of
capital stock of AIMCO, if, pursuant to the specific terms of such class or
series of stock, the holders of the Class D Preferred Stock are entitled to the
receipt of dividends or of amounts distributable upon liquidation, dissolution,
and winding-up in preference or priority to the holders of shares of such class
or series.
"Class D Liquidation Preference" means the liquidation preference of $25
per share on the Class D Preferred Stock.
"Class D Parity Stock" means the Class B Preferred Stock, the Class C
Preferred Stock, the Class G Preferred Stock, the Class H Preferred Stock, the
Class J Preferred Stock and any other class or series of capital stock of AIMCO,
if, pursuant to the specific terms of such class of stock or series, the holders
of such class of stock or series and the Class D Preferred Stock shall be
entitled to the receipt of dividends and of amounts distributable upon
liquidation, dissolution or winding up in proportion to their respective amounts
of accrued and unpaid dividends per share or liquidation preferences, without
preference or priority one over the other.
"Class D Partnership Preferred Units" means the Class D Partnership
Preferred Units of the AIMCO Operating Partnership.
"Class D Preferred Stock" means the Class D Cumulative Preferred Stock, par
value $.01 per share, of AIMCO.
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"Class D Senior Stock" means any class or series of capital stock of AIMCO,
if, pursuant to the specific terms of such class of stock or series, the holders
of such class or series shall be entitled to the receipt of dividends or amounts
distributable upon liquidation, dissolution or winding up in preference or
priority to the holders of the Class D Preferred Stock.
"Class E Partnership Preferred Units" means the Class E Partnership
Preferred Units of the AIMCO Operating Partnership.
"Class G Junior Stock" means the Common Stock and any other class or series
of capital stock of AIMCO, if, pursuant to the specific terms of such class or
series of stock, the holders of the Class G Preferred Stock are entitled to the
receipt of dividends or of amounts distributable upon liquidation, dissolution,
and winding-up in preference or priority to the holders of shares of such class
or series.
"Class G Liquidation Preference" means the liquidation preference of $25
per share on the Class G Preferred Stock.
"Class G Parity Stock" means the Class B Preferred Stock, the Class C
Preferred Stock, the Class D Preferred Stock, the Class H Preferred Stock, the
Class J Preferred Stock and any other class or series of stock of AIMCO, if,
pursuant to the specific terms of such class of stock or series, the holders of
such class of stock or series and the Class G Preferred Stock shall be entitled
to the receipt of dividends and of amounts distributable upon liquidation,
dissolution or winding up in proportion to their respective amounts of accrued
and unpaid dividends per share or liquidation preferences, without preference or
priority one over the other.
"Class G Partnership Preferred Units" means the Class G Partnership
Preferred Units of the AIMCO Operating Partnership.
"Class G Preferred Stock" means the Class G Cumulative Preferred Stock, par
value $.01 per share, of AIMCO.
"Class G Senior Stock" means any class or series of capital stock of AIMCO
which if, pursuant to the specific terms of such class of stock or series, the
holders of such class or series shall be entitled to the receipt of dividends of
amounts distributable upon liquidation, dissolution or winding up in preference
or priority to the holders of the Class G Preferred Stock.
"Class H Junior Stock" means the Common Stock and any other class or series
of capital stock of AIMCO, if, pursuant to the specific terms of such class or
series of stock, the holders of the Class H Preferred Stock are entitled to the
receipt of dividends or of amounts distributable upon liquidation, dissolution,
and winding-up in preference or priority to the holders of shares of such class
or series.
"Class H Liquidation Preference" means the liquidation preference of $25
per share on the Class H Preferred Stock.
"Class H Parity Stock" means the Class B Preferred Stock, the Class C
Preferred Stock, the Class D Preferred Stock, the Class G Preferred Stock, the
Class J Preferred Stock and any other class or series of stock of AIMCO, if,
pursuant to the specific terms of such class of stock or series, the holders of
such class of stock or series and the Class H Preferred Stock shall be entitled
to the receipt of dividends and of amounts distributable upon liquidation,
dissolution or winding up in proportion to their respective amounts of accrued
and unpaid dividends per share or liquidation preferences, without preference or
priority one over the other.
"Class H Partnership Preferred Units" means the Class H Partnership
Preferred Units of the AIMCO Operating Partnership.
"Class H Preferred Stock" means the Class H Cumulative Preferred Stock, par
value $.01 per share, of AIMCO.
"Class H Senior Stock" means any class or series of capital stock of AIMCO
which if, pursuant to the specific terms of such class of stock or series, the
holders of such class or series shall be entitled to the receipt of dividends of
amounts distributable upon liquidation, dissolution or winding up in preference
or priority to the holders of the Class H Preferred Stock.
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"Class J Junior Stock" means the Common Stock and any other class or series
of capital stock of AIMCO, if, pursuant to the specific terms of such class or
series of stock, the holders of the Class J Preferred Stock are entitled to the
receipt of dividends or of amounts distributable upon liquidation, dissolution,
and winding-up in preference or priority to the holders of shares of such class
or series.
"Class J Parity Stock" means the Class B Preferred Stock, the Class C
Preferred Stock, the Class D Preferred Stock, the Class G Preferred Stock, the
Class H Preferred Stock and any other class or series of stock of AIMCO, if,
pursuant to the specific terms of such class of stock or series, the holders of
such class of stock or series and the Class J Preferred Stock shall be entitled
to the receipt of dividends and of amounts distributable upon liquidation,
dissolution or winding up in proportion to their respective amounts of accrued
and unpaid dividends per share or liquidation preferences, without preference or
priority one over the other.
"Class J Partnership Preferred Units" means the Class J Partnership
Preferred Units of the AIMCO Operating Partnership.
"Class J Preferred Ownership Limit" means a number of shares of Class J
Preferred Stock with a value equal to the excess of (i) 8.7% (or 15% in the case
of certain pension trusts described in the Code, investment companies registered
under the Investment Company Act of 1940 and Mr. Considine) of the aggregate
value of all shares of capital stock of AIMCO over (ii) the aggregate value of
all shares of capital stock of AIMCO other than Class J Preferred Stock that are
owned by such holder.
"Class J Preferred Stock" means the Class J Cumulative Convertible
Preferred Stock, par value $.01 per share, of AIMCO.
"Class K Junior Stock" means the Common Stock and any other class or series
of capital stock of AIMCO, if, pursuant to the specific terms of such class or
series of stock, the holders of the Class K Preferred Stock are entitled to the
receipt of dividends or of amounts distributable upon liquidation, dissolution,
and winding up in preference or priority to the holders of shares of such class
of series.
"Class K Liquidation Preference" means the liquidation preference of $25
per share on the Class K Preferred Stock.
"Class K Parity Stock" means the Class B Preferred Stock, the Class C
Preferred Stock, the Class D Preferred Stock, the Class H Preferred Stock, the
Class J Preferred Stock and any other class or series of stock of AIMCO, if,
pursuant to the specific terms of such class of stock or series, the holders of
such class of stock or series and the Class K Preferred Stock shall be entitled
to the receipt of dividends and of amounts distributable upon liquidation,
dissolution or winding up in proportion to their respective amounts of accrued
and unpaid dividends per share or liquidation preferences, without preference or
priority one over the other.
"Class K Partnership Preferred Units" means the Class K Partnership
Preferred Units of the AIMCO Operating Partnership.
"Class K Preferred Stock" means the Class K Partnership Preferred Stock,
par value $.01 per share, of AIMCO.
"Class K Senior Stock" means any class or series of capital stock of AIMCO
which, if, pursuant to the specific terms of such class or series shall be
entitled to the receipt of dividends of amounts distributable upon liquidation,
dissolution or winding up in preference or priority to the holders of the Class
K Preferred Stock.
"Class One Partnership Preferred Units" means the Class One Partnership
Preferred Units, of the AIMCO Operating Partnership.
"closely held" has the meaning given to such term in the Code.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Security and Exchange Commission.
"Common OP Unitholders" means the holders of Common OP Units.
"Common OP Units" means Partnership Common Units of the AIMCO Operating
Partnership.
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"Common Stock" means the Class A Common Stock and the Class B Common Stock.
"Company" means AIMCO, together with its consolidated subsidiaries,
including the AIMCO Operating Partnership, except in "Management's Discussion
and Analysis of Financial Condition and Results of Operations of the AIMCO
Operating Partnership," it means the AIMCO Operating Partnership together with
its subsidiaries, other controlled entities and entities in which it has a
controlling financial interest.
"Company Predecessors" means AIMCO and Property Asset Management, L.L.C.,
and its affiliated companies and PDI Realty Enterprises, Inc.
"Consolidated Amended Complaint" means the consolidated amended complaint
filed by plaintiffs on February 25, 1998 relating to the California Actions.
"Contributing Partner" means a person contributing property to the AIMCO
Operating Partnership in exchange for OP Units.
"control share acquisition" means the acquisition of control shares,
subject to certain exceptions.
"control shares" means voting shares of stock that, if aggregated with all
other shares of stock previously acquired by that person, would entitle the
acquiror to exercise voting power in electing directors within one of the
following ranges of voting power: (i) one-fifth or more but less than one-third,
(ii) one-third or more but less than a majority or (iii) a majority or more of
all voting power. Control shares do not include shares the acquiring person is
then entitled to vote as a result of having previously obtained stockholder
approval.
"Controlled NHP Partnerships" means the 15 partnerships in which the
Company acquired a controlling interest after its acquisition of NHP Real Estate
Companies.
"Convertible Debentures" means the 6 1/2% Convertible Subordinated
Debentures due in 2016 and assumed by AIMCO in the Insignia Merger.
"Counsel" means Skadden, Arps, Slate, Meagher & Flom LLP, counsel to AIMCO.
"Credit Facilities" means the WMF Credit Facility, the BOA Credit Facility,
and the Lehman Credit Facility.
"Dallas Acquisition Properties" means the 12 multi-family apartment
properties acquired by the AIMCO Operating Partnership.
"Dallas Portfolio Acquisition" means the acquisition by the AIMCO Operating
Partnership of general partnership interests in 21 limited partnerships.
"Debt Coverage Ratio" means the ratio of EBITDA (less a provision of
approximately $300 per owned apartment) to debt.
"Delaware LP Act" means the Delaware Revised Uniform Limited Partnership
Act, as amended from time to time, or any successor to such statute.
"DOJ" means the U.S. Department of Justice.
"domestically controlled REIT" means a REIT in which, at all times during a
specified testing period, less than 50% in value of its shares is held directly
or indirectly by Non-U.S. Holders.
"Eligible Class B Shares" means the number of shares of Class B Common
Stock outstanding as of the Year-end Test Date which become eligible for
automatic conversion into an equal number of shares of Class A Common Stock
(subject to the Ownership Limit).
"English Acquisition" means the Company's acquisition in November 1996 of
certain partnership interests, real estate and related assets owned by the J.W.
English Companies.
"English Partnerships" means 31 limited partnerships, interests in which
were purchased by the Company from the J.W. English Companies pursuant to the
English Acquisition.
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"English Tender Offers" means the separate tender offers made by the AIMCO
Operating Partnership to the limited partners of 25 of the English Partnerships.
"EPA" means the U.S. Environmental Protection Agency.
"EPA Letter" means the letter received by NHP in October 1997 from the DOJ.
"Equity Properties" means the apartment properties in which AIMCO holds an
equity interest.
"established securities market" has the meaning given to such term in the
Code.
"Excess Return" means 15% of the amount by which the Total Return of
AIMCO's Class A Common Stock over a three year period exceeds the greater of
115% of a peer group index or the Minimum Return.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exempt Organizations" means tax-exempt entities, including qualified
employee pension and profit sharing trusts and individual retirement accounts.
"Federal Action" means the class action lawsuit filed in November 1996 by
purported limited partners of certain of the Tender Offer English Partnerships
against the Company and J.W. English in the U.S. District Court for the Northern
District of California.
"FFO" means funds from operations.
"FFO Per Share" means, for any period, (i) net income (loss), computed in
accordance with generally accepted accounting principles, excluding gains (or
losses) from debt restructuring and sales of property, plus depreciation and
amortization, and after adjustments for unconsolidated partnerships and joint
ventures, less any preferred stock dividend payments, divided by (ii) the sum of
(a) the number of shares of the Class A Common Stock outstanding on the last day
of such period (excluding any shares of the Class A Common Stock into which
shares of the Class B Common Stock shall have been converted as a result of the
conversion of shares of the Class B Common Stock on the last day of such period)
and (b) the number of shares of the Class A Common Stock issuable to acquire
units of limited partnership that (x) may be tendered for redemption in any
limited partnership in which AIMCO serves as general partner and (y) are
outstanding on the last day of such period.
"FHAA" means the Fair Housing Amendments Act of 1988.
"FIRPTA" means Foreign Investment in Real Property Tax Act of 1980.
"First Amendment" means the amendment, dated November 6, 1998, to the BOA
Credit Facility.
"FNMA" means the Federal National Mortgage Association.
"GAAP" means generally accepted accounting principles.
"General Partner" means AIMCO-GP, Inc., a wholly-owned subsidiary of AIMCO
and the general partner of the AIMCO Operating Partnership.
"GMAC" means General Motors Acceptance Corporation.
"GMAC Loans" means the 93 loans made by GMAC as of June 30, 1998 with an
aggregate outstanding principal balance of $420.1 million to property owning
partnerships of the Company, each of which is secured by the Owned Property of
such partnership.
"HAP Contracts" means Housing Assistance Payment Contracts.
"High Performance Units" means the OP Units designated as Class I High
Performance Units.
"HUD" means the U.S. Department of Housing and Urban Development.
"IFG" means Insignia Financial Group, Inc.
"Indemnitee" means the AIMCO Operating Partnership's directors and
officers.
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"Insignia" means the Insignia Financial Group, Inc.
"Insignia Merger" means the merger of Insignia with and into AIMCO.
"Insignia Merger Agreement" means the merger agreement between AIMCO, the
AIMCO Operating Partnership, Insignia and Holdings pursuant to which Insignia
will be merged with and into AIMCO.
"Insignia Multifamily Business" means the interests owned by Insignia in
various entities and acquired by AIMCO in the Insignia Merger.
"Insignia Partnerships" means the limited partnerships whose general
partners are affiliates of Insignia.
"Inspector General" means the inspector general of HUD.
"Interested Stockholder" means any person who beneficially owns 10% or more
of the voting power of the corporation's shares or an affiliate of the
corporation who, at any time within the two-year period prior to the date in
question, was the beneficial owner of 10% or more of the voting power of the
then-outstanding voting stock of the corporation.
"Interim Term Loan Agreement" means the $300 million senior unsecured
interim term loan agreement entered into in October 1998 between AIMCO, the
AIMCO Operating Partnership and an affiliate of Lehman Brothers, Inc.
"IPLP" means Insignia Properties, L.P., a Delaware limited partnership.
"IPT" means Insignia Properties Trust, a Maryland REIT, which is a majority
owned subsidiary of Insignia.
"IPT Merger" means the merger of IPT with and into AIMCO.
"IPT Merger Agreement" means the merger agreement, dated October 1, 1998,
between AIMCO and IPT.
"IPT Shares" means the shares of beneficial interest of IPT, par value $.01
per share.
"IRS" means the Internal Revenue Service.
"J.W. English Companies" means J.W. English, a Houston, Texas-based real
estate syndicator and developer, and certain affiliated entities.
"Lehman Credit Facility" means the $300 million senior unsecured interim
one-year term loan entered into on October 1, 1998 between the Company and an
affiliate of Lehman Brothers, Inc.
"LDP" means a limited denial of participation by any HUD office.
"Liquidating Event" means any of the following: (i) December 31, 2093; (ii)
an event of withdrawal, as defined in the Delaware LP Act (including, without
limitation, bankruptcy), of the sole AIMCO GP unless, within ninety (90) days
after the withdrawal, a majority in interest (as such phrase is used in Section
17-801(3) of the Delaware LP Act) of the remaining OP Unitholders agree in
writing, in their sole and absolute discretion, to continue the business of the
AIMCO Operating Partnership and to the appointment, effective as of the date of
withdrawal, of a successor AIMCO GP; (iii) an election to dissolve the AIMCO
Operating Partnership made by the AIMCO GP in its sole and absolute discretion,
with or without the consent of the OP Unitholders; (iv) entry of a decree of
judicial dissolution of the AIMCO Operating Partnership pursuant to the
provisions of the Delaware LP Act; (v) the occurrence of a Terminating Capital
Transaction; or (vi) the Redemption (or acquisition by AIMCO, the AIMCO GP
and/or the Special Limited Partner) of all Common OP Units other than Common OP
Units held by the AIMCO GP or the Special Limited Partner.
"Majority in Interest" means OP Unitholders (other than (i) the Special
Limited Partner and (ii) any OP Unitholder fifty percent (50%) or more of whose
equity is owned, directly or indirectly, by (a) the AIMCO GP or (b) any REIT as
to which the AIMCO GP is a "qualified REIT subsidiary" (within the meaning of
Code Section 856(i)(2))) holding more than fifty percent (50%) of the
outstanding Common OP
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Units held by all OP Unitholders (other than (i) the Special Limited Partner and
(ii) any OP Unitholder fifty percent (50%) or more of whose equity is owned,
directly or indirectly, by (a) the AIMCO GP or (b) any REIT as to which the
AIMCO GP is a "qualified REIT subsidiary" (within the meaning of Code Section
856(i)(2))).
"Managed Properties" means the apartment properties managed by AIMCO for
third party owners and affiliates.
"Management Agreement" means the agreement between AIMCO and the AIMCO
Operating Partnership.
"Management Subsidiaries" means PAMS LP and the other subsidiaries of the
Company that manage the Managed Properties.
"March Hedge" means the interest rate hedging agreement entered into in
March 1997 between the Company and an investment banking company in anticipation
of certain indebtedness.
"Margin" means the additional interest rate added to the interest rate
under the BOA Credit Facility.
"Measurement Period" means the January 1, 1998 to the Valuation Date.
"MergerSub" means the Delaware limited partnership owned by the AIMCO
Operating Partnership.
"MGCL" means the Maryland General Corporation Law.
"Minimum Return" means a 30% cumulative Total Return over three years.
"NAREIT" means the National Association of Real Estate Investment Trusts.
"NHP" means NHP Incorporated.
"NHP Properties" means the 534 multifamily apartment properties containing
87,689 apartment units, a captive insurance subsidiary and certain related
assets.
"NHP Real Estate Companies" means a group of companies previously owned by
NHP that hold interests in the NHP Properties.
"NHP Warrants" means the warrants exercisable to purchase an aggregate of
399,999 shares of Class A Common Stock at $36 per share at any time prior to
June 3, 2002.
"NHPA&R" means NHP A&R Services, Inc.
"NHPMC" means NHP Property Management Corporation.
"Non-Qualified Plan" means the Non-Qualified Employee Stock Option Plan of
AIMCO.
"Non-U.S. Holder" means any person other than (i) a citizen or resident of
the United States, (ii) a corporation or partnership created or organized in the
United States or under the laws of the United States or of any state thereof or
the District of Columbia, (iii) an estate whose income is includible in gross
income for U.S. federal income tax purposes regardless of its source or (iv) a
trust if a United States court is able to exercise primary supervision over the
administration of such trust and one or more United States fiduciaries have the
authority to control all substantial decisions of such trust.
"NYSE" means the New York Stock Exchange.
"October Hedge" means the hedging agreement entered into in October 1997 by
the AIMCO Operating Partnership in connection with the acquisition of Foxchase
Apartments.
"OP Merger" means the merger of the Ambassador Operating Partnership with
and into the AIMCO Operating Partnership.
"OP Unitholder" means a holder of OP Units.
"OP Units" means Preferred OP Units and the Common OP Units.
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"Owned Properties" means the apartment properties owned or controlled by
AIMCO.
"Owners" means the AIMCO Operating Partnership, AIMCO and certain single
asset wholly-owned subsidiaries of the Company.
"Ownership Limit" means the limit by the AIMCO Charter of direct or
constructive ownership of shares of Class A Common Stock representing more than
8.7% (or 15% in the case of certain pension trusts, registered investment
companies and Mr. Considine) of the combined total of outstanding shares of
AIMCO's Class A Common Stock or Class B Common Stock by any person.
"Oxford" means Oxford Realty Financial Group, Inc., a Maryland corporation.
"Oxford Warrants" means the warrants exercisable to purchase an aggregate
of 500,000 shares of Class A Common Stock at $41 per share.
"Partner" means the AIMCO GP or an OP Unitholder, and "Partners" means the
AIMCO GP and the OP Unitholders.
"Partnership" shall mean AIMCO Properties, L.P., a Delaware limited
partnership.
"Partnership Tax Items" means partnership tax items including partnership
income, gains, losses, deductions, and credits.
"Preferred OP Units" means Partnership Preferred Units of the AIMCO
Operating Partnership.
"Preferred Share Investor" means the institutional investor to whom AIMCO
issued 750,000 shares of Class B Preferred Stock in a private transaction.
"Preferred Share Purchase Agreement" means the agreement pursuant to which
AIMCO issued the Class B Preferred Stock.
"Preferred Stock" means the preferred stock of AIMCO, par value $.01 per
share.
"Prospectus" means this prospectus, as it may be further supplemented or
amended from time to time.
"Prospectus Supplement" means a prospectus supplement accompanying the
Prospectus.
"PTP Regulations" means the Treasury Regulations generally effective for
taxable years beginning after December 31, 1995.
"publicly traded" has the meaning given to such term in the Code.
"publicly traded partnership" means a partnership classified as a publicly
traded partnership for federal income tax purposes.
"qualifying income" means, in general, income which includes interest,
dividends, real property rents (as defined by Section 856 of the Code) and gain
from the sale or disposition of real property.
"QRSs" means the entities in which the AIMCO Operating Partnership does not
own any interest.
"readily tradable" has the meaning given to such term in the Code.
"Redemption" means to redeem all or a portion of the Common OP Units held
by a Common OP Unitholder and certain Assignees in exchange for a cash amount
based on the value of shares of Class A Common Stock.
"Registration Statement" means the registration statement on Form S-4 of
which the Prospectus forms a part, together with all amendments and exhibits,
filed by AIMCO and the AIMCO Operating Partnership with the Commission.
"regularly traded" has the meaning given to such term in the Treasury
Regulations.
"REIT" means a real estate investment trust.
"REIT Requirements" means the requirements for qualifying a REIT under the
Code.
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"REIT Taxable Income" has the meaning given to such term in the Code and
the Treasury Regulations.
"Schedule K-1" means the report which the AIMCO Operating Partnership
furnishes to each OP Unitholder that sets forth his allocable share of income,
gains, losses and deductions.
"secondary market" has the meaning given to such term in the Code.
"Section 751 Assets" has the meaning given to such term in the Code.
"Section 8" means Section 8 of the United States Housing Act of 1937.
"Securities" means the Preferred Stock, the Class A Common Stock and the OP
Units.
"Securities Act" means the Securities Act of 1933, as amended.
"Securityholders" means persons who may receive from AIMCO or the AIMCO
Operating Partnership Securities covered by the Registration Statement in
acquisitions and who may be entitled to offer such Securities under
circumstances requiring the use of a Prospectus.
"September Hedge" means the interest rate agreement entered into in
September 1997 between the Company and an investment banking company.
"SFAS 123" means the Statement of Financial Accounting Standards No.
23 -- Accounting for Stock-Based Compensation.
"SFAS 128" means the Statement of Financial Accounting Standards No.
128 -- Earnings Per Share.
"SFAS 130" means the Statement of Financial Accounting Standards No.
130 -- Reporting Comprehensive Income.
"SFAS 131" means the Statement of Financial Accounting Standards No.
131 -- Disclosures about Segments of an Enterprise and Related Information.
"SMP" means SMP I, L.L.C., a Delaware limited liability company.
"Special Dividend" means the special dividend of $50 million in the
aggregate of which holders of Class E Preferred Stock will be entitled to
receive a pro rata share.
"Special Limited Partner" means AIMCO-LP, Inc., a limited partner in the
AIMCO Operating Partnership.
"Subsidiary Partnerships" means other limited partnerships and limited
liability companies in which AIMCO has a controlling interest.
"Tax Matters Partner" means AIMCO GP, which is authorized, but not
required, to take certain actions on behalf of the AIMCO Operating Partnership
with respect to tax matters.
"Tender Offer English Partnerships" means the 25 English Partnerships that
received English Tender Offers.
"Terminating Capital Transaction" means the sale or other disposition of
all or substantially all of the assets of the AIMCO Operating Partnership or a
related series of transactions that, taken together, result in the sale or other
disposition of all or substantially all of the assets of the AIMCO Operating
Partnership.
"TMT" means tentative minimum tax.
"TNRCC" means the Texas Natural Resources Conservation Commission.
"Total Return" means, for any security and for any period, the cumulative
total return for such security over such period, as measured by (i) the sum of
(a) the cumulative amount of dividends paid in respect of such security for such
period (assuming that all cash dividends are reinvested in such security as of
the payment date for such dividend based on the security price on the dividend
payment date), and (b) an amount equal to (x) the security price at the end of
such period, minus (y) the security price at the beginning of such
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period, divided by (ii) the security price at the beginning of the measurement
period; provided, however, that if the foregoing calculation results in a
negative number, the "Total Return" shall be equal to zero.
"Treasury Regulations" means the Treasury regulations promulgated under the
Code.
"UBTI" means unrelated business taxable income.
"UBTI Percentage" means the gross income derived by AIMCO from an unrelated
trade or business (determined as if AIMCO were a pension trust) divided by the
gross income of AIMCO for the year in which the dividends are paid.
"Unconsolidated Partnership" means a limited partnership in which the AIMCO
Operating Partnership will hold a 99% limited partnership interest and certain
directors and officers of AIMCO will, directly or indirectly, hold a 1% general
partner interest.
"Unconsolidated Subsidiaries" means the unconsolidated subsidiaries of
AIMCO, which from time to time, the Company has organized in order to satisfy
certain requirements for AIMCO's continued qualification as a REIT.
"Underlying Partnership" means another partnership other than the AIMCO
Operating Partnership.
"USRPI" means a United States Real Property Interest.
"USRPI Capital Gains" means a distribution made by AIMCO to a Non-U.S.
Holder, to the extent attributable to gains from dispositions of USRPIs such as
the properties beneficially owned by AIMCO.
"Valuation Date" means the date that is the earlier of (i) January 1, 2001,
or (ii) the date on which a change of control occurs.
"voting stock" means the stock entitled to be cast generally in the
election of directors.
"Washington Mortgage" means Washington Mortgage Financial Group, Ltd.
"Winthrop Portfolio" means the 35 residential apartment properties acquired
by the AIMCO Operating Partnership in October 1997.
"WMF Credit Facility" means the $50 million secured revolving credit
facility entered into in February 1998 between the Company and Washington
Mortgage.
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APPENDIX B
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THIRD AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP
OF
AIMCO PROPERTIES, L.P.
A DELAWARE LIMITED PARTNERSHIP
------------------------
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF ANY STATE AND MAY
NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH
REGISTRATION, UNLESS THE TRANSFEROR DELIVERS TO THE PARTNERSHIP AN OPINION OF
COUNSEL SATISFACTORY TO THE PARTNERSHIP, IN FORM AND SUBSTANCE SATISFACTORY TO
THE PARTNERSHIP, TO THE EFFECT THAT THE PROPOSED SALE, TRANSFER OR OTHER
DISPOSITION MAY BE EFFECTED WITHOUT REGISTRATION UNDER THE ACT AND UNDER
APPLICABLE STATE SECURITIES OR "BLUE SKY" LAWS.
DATED AS OF JULY 29, 1994
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 535
TABLE OF CONTENTS
<TABLE>
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ARTICLE 1 DEFINED TERMS............................................... B-1
ARTICLE 2 ORGANIZATIONAL MATTERS...................................... B-14
Section 2.1 Organization.................................. B-14
Section 2.2 Name.......................................... B-14
Section 2.3 Registered Office and Agent; Principal
Office...................................................... B-14
Section 2.4 Power of Attorney............................. B-14
Section 2.5 Term.......................................... B-15
ARTICLE 3 PURPOSE..................................................... B-15
Section 3.1 Purpose and Business.......................... B-15
Section 3.2 Powers........................................ B-16
Section 3.3 Partnership Only for Purposes Specified....... B-16
Section 3.4 Representations and Warranties by the
Parties..................................................... B-16
ARTICLE 4 CAPITAL CONTRIBUTIONS....................................... B-18
Section 4.1 Capital Contributions of the Partners......... B-18
Section 4.2 Issuances of Additional Partnership
Interests................................................... B-18
Section 4.3 Additional Funds.............................. B-19
Section 4.4 Stock Option Plans............................ B-20
Section 4.5 No Interest; No Return........................ B-21
Section 4.6 Conversion of Junior Shares................... B-21
ARTICLE 5 DISTRIBUTIONS............................................... B-21
Section 5.1 Requirement and Characterization of
Distributions............................................... B-21
Section 5.2 Distributions in Kind......................... B-21
Section 5.3 Amounts Withheld.............................. B-22
Section 5.4 Distributions Upon Liquidation................ B-22
Section 5.5 Restricted Distributions...................... B-22
ARTICLE 6 ALLOCATIONS................................................. B-22
Section 6.1 Timing and Amount of Allocations of Net Income
and Net Loss.................................. B-22
Section 6.2 General Allocations........................... B-22
Section 6.3 Additional Allocation Provisions.............. B-22
Section 6.4 Tax Allocations............................... B-24
ARTICLE 7 MANAGEMENT AND OPERATIONS OF BUSINESS....................... B-24
Section 7.1 Management.................................... B-24
Section 7.2 Certificate of Limited Partnership............ B-27
Section 7.3 Restrictions on General Partner's Authority... B-27
Section 7.4 Reimbursement of the General Partner.......... B-29
Section 7.5 Outside Activities of the Previous General
Partner and the General Partner............................. B-29
</TABLE>
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<TABLE>
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<S> <C> <C>
Section 7.6 Contracts with Affiliates..................... B-30
Section 7.7 Indemnification............................... B-30
Section 7.8 Liability of the General Partner.............. B-32
Section 7.9 Other Matters Concerning the General
Partner..................................................... B-32
Section 7.10 Title to Partnership Assets................... B-33
Section 7.11 Reliance by Third Parties..................... B-33
ARTICLE 8 RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS.................. B-34
Section 8.1 Limitation of Liability....................... B-34
Section 8.2 Management of Business........................ B-34
Section 8.3 Outside Activities of Limited Partners........ B-34
Section 8.4 Return of Capital............................. B-34
Section 8.5 Rights of Limited Partners Relating to the
Partnership................................................. B-34
Section 8.6 Redemption Rights of Qualifying Parties....... B-35
Section 8.7 Partnership Right to Call Limited Partner
Interests................................................... B-38
ARTICLE 9 BOOKS, RECORDS, ACCOUNTING AND REPORTS...................... B-38
Section 9.1 Records and Accounting........................ B-38
Section 9.2 Fiscal Year................................... B-39
Section 9.3 Reports....................................... B-39
ARTICLE 10 TAX MATTERS................................................. B-39
Section 10.1 Preparation of Tax Returns.................... B-39
Section 10.2 Tax Elections................................. B-39
Section 10.3 Tax Matters Partner........................... B-39
Section 10.4 Withholding................................... B-40
ARTICLE 11 TRANSFERS AND WITHDRAWALS................................... B-41
Section 11.1 Transfer...................................... B-41
Section 11.2 Transfer of General Partner's Partnership
Interest.................................................... B-41
Section 11.3 Limited Partners' Rights to Transfer.......... B-42
Section 11.4 Substituted Limited Partners.................. B-44
Section 11.5 Assignees..................................... B-44
Section 11.6 General Provisions............................ B-44
ARTICLE 12 ADMISSION OF PARTNERS....................................... B-46
Section 12.1 Admission of Successor General Partner........ B-46
Section 12.2 Admission of Additional Limited Partners...... B-46
Section 12.3 Amendment of Agreement and Certificate of
Limited Partnership........................... B-46
Section 12.4 Admission of Initial Limited Partners......... B-46
ARTICLE 13 DISSOLUTION, LIQUIDATION AND TERMINATION.................... B-47
Section 13.1 Dissolution................................... B-47
Section 13.2 Winding Up.................................... B-47
</TABLE>
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<TABLE>
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<S> <C> <C>
Section 13.3 Deemed Distribution and Recontribution........ B-48
Section 13.4 Rights of Limited Partners.................... B-48
Section 13.5 Notice of Dissolution......................... B-49
Section 13.6 Cancellation of Certificate of Limited
Partnership................................................. B-49
Section 13.7 Reasonable Time for Winding-Up................ B-49
ARTICLE 14 PROCEDURES FOR ACTIONS AND CONSENTS OF PARTNERS; AMENDMENTS;
MEETINGS.................................................... B-49
Section 14.1 Procedures for Actions and Consents of
Partners.................................................... B-49
Section 14.2 Amendments.................................... B-49
Section 14.3 Meetings of the Partners...................... B-49
ARTICLE 15 GENERAL PROVISIONS.......................................... B-50
Section 15.1 Addresses and Notice.......................... B-50
Section 15.2 Titles and Captions........................... B-50
Section 15.3 Pronouns and Plurals.......................... B-50
Section 15.4 Further Action................................ B-50
Section 15.5 Binding Effect................................ B-50
Section 15.6 Waiver........................................ B-50
Section 15.7 Counterparts.................................. B-51
Section 15.8 Applicable Law................................ B-51
Section 15.9 Entire Agreement.............................. B-51
Section 15.10 Invalidity of Provisions...................... B-51
Section 15.11 Limitation to Preserve REIT Status............ B-51
Section 15.12 No Partition.................................. B-52
Section 15.13 No Third-Party Rights Created Hereby.......... B-52
</TABLE>
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<TABLE>
<CAPTION>
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<S> <C> <C>
EXHIBIT A PARTNERS AND PARTNERSHIP UNITS.............................. A-1
EXHIBIT B EXAMPLES REGARDING ADJUSTMENT FACTOR........................ B-1
EXHIBIT C LIST OF DESIGNATED PARTIES.................................. C-1
EXHIBIT D INTENTIONALLY OMITTED....................................... D-1
EXHIBIT E NOTICE OF REDEMPTION........................................ E-1
EXHIBIT F FORM OF UNIT CERTIFICATE.................................... F-1
EXHIBIT G PARTNERSHIP UNIT DESIGNATION OF THE CLASS B PARTNERSHIP
PREFERRED UNITS............................................. G-1
EXHIBIT H PARTNERSHIP UNIT DESIGNATION OF THE CLASS C PARTNERSHIP
PREFERRED UNITS............................................. H-1
EXHIBIT I PARTNERSHIP UNIT DESIGNATION OF THE CLASS D PARTNERSHIP
PREFERRED UNITS............................................. I-1
EXHIBIT J PARTNERSHIP UNIT DESIGNATION OF THE CLASS E PARTNERSHIP
PREFERRED UNITS............................................. J-1
EXHIBIT K PARTNERSHIP UNIT DESIGNATION OF THE CLASS I HIGH PERFORMANCE
PARTNERSHIP UNITS........................................... K-1
EXHIBIT L PARTNERSHIP UNIT DESIGNATION OF THE CLASS G PARTNERSHIP
PREFERRED UNITS............................................. L-1
EXHIBIT M PARTNERSHIP UNIT DESIGNATION OF THE CLASS H PARTNERSHIP
PREFERRED UNITS............................................. M-1
EXHIBIT N PARTNERSHIP UNIT DESIGNATION OF THE CLASS J PARTNERSHIP
PREFERRED UNITS............................................. N-1
EXHIBIT O PARTNERSHIP UNIT DESIGNATION OF THE CLASS ONE PARTNERSHIP
PREFERRED UNITS............................................. O-1
EXHIBIT P PARTNERSHIP UNIT DESIGNATION OF THE CLASS I PARTNERSHIP
PREFERRED UNITS............................................. P-1
</TABLE>
NONE OF THE ABOVE EXHIBITS ARE INCLUDED IN THIS PROSPECTUS.
THEY ARE AVAILABLE UPON REQUEST OF AIMCO PROPERTIES, L.P.
iv
<PAGE> 539
THIRD AMENDED AND RESTATED AGREEMENT OF
LIMITED PARTNERSHIP OF AIMCO PROPERTIES, L.P.
THIS THIRD AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF AIMCO
PROPERTIES, L.P., dated as of July 29, 1994, and amended and restated as of
October 1, 1998, is entered into by and among Apartment Investment and
Management Company, a Maryland corporation (the "Previous General Partner"),
AIMCO-GP, Inc., a Delaware corporation (the "General Partner"), AIMCO-LP, Inc.,
a Delaware corporation (the "Special Limited Partner"), and the other Limited
Partners (as defined below).
WHEREAS, the General Partner has submitted, and the Limited Partners have
approved, an amendment and restatement of the Agreement of Limited Partnership
of AIMCO Properties, L.P. on the terms set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
ARTICLE I
DEFINED TERMS
The following definitions shall be for all purposes, unless otherwise
clearly indicated to the contrary, applied to the terms used in this Agreement.
"Act" means the Delaware Revised Uniform Limited Partnership Act, as it may
be amended from time to time, and any successor to such statute.
"Actions" has the meaning set forth in Section 7.7 hereof.
"Additional Funds" has the meaning set forth in Section 4.3.A hereof.
"Additional Limited Partner" means a Person who is admitted to the
Partnership as a Limited Partner pursuant to Section 4.2 and Section 12.2 hereof
and who is shown as such on the books and records of the Partnership.
"Adjusted Capital Account Deficit" means, with respect to any Partner, the
deficit balance, if any, in such Partner's Capital Account as of the end of the
relevant Fiscal Year, after giving effect to the following adjustments:
(i) decrease such deficit by any amounts that such Partner is
obligated to restore pursuant to this Agreement or by operation of law upon
liquidation of such Partner's Partnership Interest or is deemed to be
obligated to restore pursuant to the penultimate sentence of each of
Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5); and
(ii) increase such deficit by the items described in Regulations
Section 1.704-1(b)(2)(ii)(d)(4), (5) and (6).
The foregoing definition of "Adjusted Capital Account Deficit" is intended
to comply with the provisions of Regulations Section 1.704-1(b)(2)(ii)(d) and
shall be interpreted consistently therewith.
"Adjustment Factor" means 1.0; provided, however, that in the event that:
(i) the Previous General Partner (a) declares or pays a dividend on
its outstanding REIT Shares in REIT Shares or makes a distribution to all
holders of its outstanding REIT Shares in REIT Shares, (b) splits or
subdivides its outstanding REIT Shares or (c) effects a reverse stock split
or otherwise combines its outstanding REIT Shares into a smaller number of
REIT Shares, the Adjustment Factor shall be adjusted by multiplying the
Adjustment Factor previously in effect by a fraction, (i) the numerator of
which shall be the number of REIT Shares issued and outstanding on the
record date for
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<PAGE> 540
such dividend, distribution, split, subdivision, reverse split or
combination (assuming for such purposes that such dividend, distribution,
split, subdivision, reverse split or combination has occurred as of such
time) and (ii) the denominator of which shall be the actual number of REIT
Shares (determined without the above assumption) issued and outstanding on
the record date for such dividend, distribution, split, subdivision,
reverse split or combination;
(ii) the Previous General Partner distributes any rights, options or
warrants to all holders of its REIT Shares to subscribe for or to purchase
or to otherwise acquire REIT Shares (or other securities or rights
convertible into, exchangeable for or exercisable for REIT Shares) at a
price per share less than the Value of a REIT Share on the record date for
such distribution (each a "Distributed Right"), then the Adjustment Factor
shall be adjusted by multiplying the Adjustment Factor previously in effect
by a fraction (a) the numerator of which shall be the number of REIT Shares
issued and outstanding on the record date plus the maximum number of REIT
Shares purchasable under such Distributed Rights and (b) the denominator of
which shall be the number of REIT Shares issued and outstanding on the
record date plus a fraction (1) the numerator of which is the maximum
number of REIT Shares purchasable under such Distributed Rights times the
minimum purchase price per REIT Share under such Distributed Rights and (2)
the denominator of which is the Value of a REIT Share as of the record
date; provided, however, that, if any such Distributed Rights expire or
become no longer exercisable, then the Adjustment Factor shall be adjusted,
effective retroactive to the date of distribution of the Distributed
Rights, to reflect a reduced maximum number of REIT Shares or any change in
the minimum purchase price for the purposes of the above fraction; and
(iii) the Previous General Partner shall, by dividend or otherwise,
distribute to all holders of its REIT Shares evidences of its indebtedness
or assets (including securities, but excluding any dividend or distribution
referred to in subsection (i) above), which evidences of indebtedness or
assets relate to assets not received by the Previous General Partner, the
General Partner and/or the Special Limited Partner pursuant to a pro rata
distribution by the Partnership, then the Adjustment Factor shall be
adjusted to equal the amount determined by multiplying the Adjustment
Factor in effect immediately prior to the close of business on the date
fixed for determination of shareholders entitled to receive such
distribution by a fraction (i) the numerator shall be such Value of a REIT
Share on the date fixed for such determination and (ii) the denominator
shall be the Value of a REIT Share on the dates fixed for such
determination less the then fair market value (as determined by the General
Partner, whose determination shall be conclusive) of the portion of the
evidences of indebtedness or assets so distributed applicable to one REIT
Share.
Any adjustments to the Adjustment Factor shall become effective immediately
after the effective date of such event, retroactive to the record date, if any,
for such event, provided, however, that any Limited Partner may waive, by
written notice to the General Partner, the effect of any adjustment to the
Adjustment Factor applicable to the Partnership Common Units held by such
Limited Partner, and, thereafter, such adjustment will not be effective as to
such Partnership Common Units. For illustrative purposes, examples of
adjustments to the Adjustment Factor are set forth on Exhibit B attached hereto.
"Affiliate" means, with respect to any Person, any Person directly or
indirectly controlling or controlled by or under common control with such
Person. For the purposes of this definition, "control" when used with respect to
any Person means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of such Person, whether
through the ownership of voting securities, by contract or otherwise, and the
terms "controlling" and "controlled" have meanings correlative to the foregoing.
"Agreement" means this Third Amended and Restated Agreement of Limited
Partnership of AIMCO Properties, L.P., as it may be amended, supplemented or
restated from time to time.
"Applicable Percentage" has the meaning set forth in Section 8.6.B hereof.
"Appraisal" means, with respect to any assets, the written opinion of an
independent third party experienced in the valuation of similar assets, selected
by the General Partner in good faith. Such opinion may
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be in the form of an opinion by such independent third party that the value for
such property or asset as set by the General Partner is fair, from a financial
point of view, to the Partnership.
"Assignee" means a Person to whom one or more Partnership Common Units have
been Transferred in a manner permitted under this Agreement, but who has not
become a Substituted Limited Partner, and who has the rights set forth in
Section 11.5 hereof.
"Available Cash" means, with respect to any period for which such
calculation is being made,
(i) the sum, without duplication, of:
(1) the Partnership's Net Income or Net Loss (as the case may be)
for such period,
(2) Depreciation and all other noncash charges to the extent
deducted in determining Net Income or Net Loss for such period,
(3) the amount of any reduction in reserves of the Partnership
referred to in clause (ii)(6) below (including, without limitation,
reductions resulting because the General Partner determines such amounts
are no longer necessary),
(4) the excess, if any, of the net cash proceeds from the sale,
exchange, disposition, financing or refinancing of Partnership property
for such period over the gain (or loss, as the case may be) recognized
from such sale, exchange, disposition, financing or refinancing during
such period (excluding Terminating Capital Transactions), and
(5) all other cash received (including amounts previously accrued
as Net Income and amounts of deferred income) or any net amounts
borrowed by the Partnership for such period that was not included in
determining Net Income or Net Loss for such period;
(ii) less the sum, without duplication, of:
(1) all principal debt payments made during such period by the
Partnership,
(2) capital expenditures made by the Partnership during such
period,
(3) investments in any entity (including loans made thereto) to the
extent that such investments are not otherwise described in clause
(ii)(1) or clause (ii)(2) above,
(4) all other expenditures and payments not deducted in determining
Net Income or Net Loss for such period (including amounts paid in
respect of expenses previously accrued),
(5) any amount included in determining Net Income or Net Loss for
such period that was not received by the Partnership during such period,
(6) the amount of any increase in reserves (including, without
limitation, working capital reserves) established during such period
that the General Partner determines are necessary or appropriate in its
sole and absolute discretion, and
(7) any amount distributed or paid in redemption of any Limited
Partner Interest or Partnership Units including, without limitation, any
Cash Amount paid.
Notwithstanding the foregoing, Available Cash shall not include (a) any cash
received or reductions in reserves, or take into account any disbursements made,
or reserves established, after dissolution and the commencement of the
liquidation and winding up of the Partnership or (b) any Capital Contributions,
whenever received.
"Business Day" means any day except a Saturday, Sunday or other day on
which commercial banks in Denver, Colorado, Los Angeles, California or New York,
New York are authorized or required by law to close.
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"Capital Account" means, with respect to any Partner, the Capital Account
maintained by the General Partner for such Partner on the Partnership's books
and records in accordance with the following provisions:
(a) To each Partner's Capital Account, there shall be added such
Partner's Capital Contributions, such Partner's distributive share of Net
Income and any items in the nature of income or gain that are specially
allocated pursuant to Section 6.3 hereof, and the principal amount of any
Partnership liabilities assumed by such Partner or that are secured by any
property distributed to such Partner.
(b) From each Partner's Capital Account, there shall be subtracted the
amount of cash and the Gross Asset Value of any property distributed to
such Partner pursuant to any provision of this Agreement, such Partner's
distributive share of Net Losses and any items in the nature of expenses or
losses that are specially allocated pursuant to Section 6.3 hereof, and the
principal amount of any liabilities of such Partner assumed by the
Partnership or that are secured by any property contributed by such Partner
to the Partnership.
(c) In the event any interest in the Partnership is Transferred in
accordance with the terms of this Agreement, the transferee shall succeed
to the Capital Account of the transferor to the extent that it relates to
the Transferred interest.
(d) In determining the principal amount of any liability for purposes
of subsections (a) and (b) hereof, there shall be taken into account Code
Section 752(c) and any other applicable provisions of the Code and
Regulations.
(e) The provisions of this Agreement relating to the maintenance of
Capital Accounts are intended to comply with Regulations Sections
1.704-1(b) and 1.704-2, and shall be interpreted and applied in a manner
consistent with such Regulations. If the General Partner shall determine
that it is prudent to modify the manner in which the Capital Accounts are
maintained in order to comply with such Regulations, the General Partner
may make such modification provided that such modification will not have a
material effect on the amounts distributable to any Partner without such
Partner's Consent. The General Partner also shall (i) make any adjustments
that are necessary or appropriate to maintain equality between the Capital
Accounts of the Partners and the amount of Partnership capital reflected on
the Partnership's balance sheet, as computed for book purposes, in
accordance with Regulations Section 1.704-1(b)(2)(iv)(q) and (ii) make any
appropriate modifications in the event that unanticipated events might
otherwise cause this Agreement not to comply with Regulations Section
1.704-1(b) or Section 1.704-2.
"Capital Contribution" means, with respect to any Partner, the amount of
money and the initial Gross Asset Value of any Contributed Property that such
Partner contributes to the Partnership pursuant to Section 4.1, 4.2 or 4.3
hereof or is deemed to contribute pursuant to Section 4.4 hereof.
"Cash Amount" means the lesser of (a) an amount of cash equal to the
product of (i) the Value of a REIT Share and (ii) the REIT Shares Amount
determined as of the applicable Valuation Date or (b) in the case of a
Declination followed by a Public Offering Funding, the Public Offering Funding
Amount.
"Certificate" means the Certificate of Limited Partnership of the
Partnership filed in the office of the Secretary of State of the State of
Delaware, as amended from time to time in accordance with the terms hereof and
the Act.
"Charter" means the Articles of Amendment and Restatement of the Previous
General Partner filed with the Maryland State Department of Assessments and
Taxation on July 19, 1994, as amended, supplemented or restated from time to
time.
"Code" means the Internal Revenue Code of 1986, as amended and in effect
from time to time or any successor statute thereto, as interpreted by the
applicable Regulations thereunder. Any reference herein to a specific section or
sections of the Code shall be deemed to include a reference to any corresponding
provision of future law.
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"Company Employee" has the meaning ascribed thereto in the Previous General
Partner's 1994 Stock Option Plan.
"Consent" means the consent to, approval of, or vote in favor of a proposed
action by a Partner given in accordance with Article 14 hereof.
"Consent of the Limited Partners" means the Consent of a Majority in
Interest of the Limited Partners, which Consent shall be obtained prior to the
taking of any action for which it is required by this Agreement and, except as
otherwise provided in this Agreement, may be given or withheld by a Majority in
Interest of the Limited Partners, in their reasonable discretion.
"Contributed Property" means each Property or other asset, in such form as
may be permitted by the Act, but excluding cash, contributed or deemed
contributed to the Partnership (or deemed contributed to the Partnership on
termination and reconstitution thereof pursuant to Code Section 708).
"Controlled Entity" means, as to any Limited Partner, (a) any corporation
more than fifty percent (50%) of the outstanding voting stock of which is owned
by such Limited Partner or such Limited Partner's Family Members, (b) any trust,
whether or not revocable, of which such Limited Partner or such Limited
Partner's Family Members are the sole beneficiaries, (c) any partnership of
which such Limited Partner is the managing partner and in which such Limited
Partner or such Limited Partner's Family Members hold partnership interests
representing at least twenty-five percent (25%) of such partnership's capital
and profits and (d) any limited liability company of which such Limited Partner
is the manager and in which such Limited Partner or such Limited Partner's
Family Members hold membership interests representing at least twenty-five
percent (25%) of such limited liability company's capital and profits.
"Controlling Person" means any Person, whatever his or her title, who
performs executive or senior management functions for the General Partner or its
Affiliates similar to those of directors, executive management and senior
management, or any Person who either holds a two percent (2%) or more equity
interest in the General Partner or its Affiliates, or has the power to direct or
cause the direction of the General Partner or its Affiliates, whether through
the ownership of voting securities, by contract or otherwise, or, in the absence
of a specific role or title, any Person having the power to direct or cause the
direction of the management-level employees and policies of the General Partner
or its Affiliates. It is not intended that every Person who carries a title such
as vice president, senior vice president, secretary or treasurer be included in
the definition of "Controlling Person."
"Cut-Off Date" means the fifth (5th) Business Day after the General
Partner's receipt of a Notice of Redemption.
"Debt" means, as to any Person, as of any date of determination, (i) all
indebtedness of such Person for borrowed money or for the deferred purchase
price of property or services; (ii) all amounts owed by such Person to banks or
other Persons in respect of reimbursement obligations under letters of credit,
surety bonds and other similar instruments guaranteeing payment or other
performance of obligations by such Person; (iii) all indebtedness for borrowed
money or for the deferred purchase price of property or services secured by any
lien on any property owned by such Person, to the extent attributable to such
Person's interest in such property, even though such Person has not assumed or
become liable for the payment thereof; and (iv) lease obligations of such Person
that, in accordance with generally accepted accounting principles, should be
capitalized.
"Declination" has the meaning set forth in Section 8.6.D hereof.
"Depreciation" means, for each Fiscal Year or other applicable period, an
amount equal to the federal income tax depreciation, amortization or other cost
recovery deduction allowable with respect to an asset for such year or other
period, except that if the Gross Asset Value of an asset differs from its
adjusted basis for federal income tax purposes at the beginning of such year or
period, Depreciation shall be in an amount that bears the same ratio to such
beginning Gross Asset Value as the federal income tax depreciation, amortization
or other cost recovery deduction for such year or other period bears to such
beginning adjusted tax basis; provided, however, that if the federal income tax
depreciation, amortization or other cost recovery deduction
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for such year or period is zero, Depreciation shall be determined with reference
to such beginning Gross Asset Value using any reasonable method selected by the
General Partner.
"Designated Parties" means the Persons designated on Exhibit C attached
hereto. The General Partner may, in its sole and absolute discretion, amend
Exhibit C to add Persons to be designated as Designated Parties.
"Distributed Right" has the meaning set forth in the definition of
"Adjustment Factor."
"Effective Date" means July 29, 1994.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the SEC promulgated thereunder.
"Family Members" means, as to a Person that is an individual, such Person's
spouse, ancestors, descendants (whether by blood or by adoption), brothers,
sisters and inter vivos or testamentary trusts of which only such Person and his
spouse, ancestors, descendants (whether by blood or by adoption), brothers and
sisters are beneficiaries.
"Fiscal Year" means the fiscal year of the Partnership, which shall be the
calendar year.
"Funding Debt" means any Debt incurred by or on behalf of the Previous
General Partner, the General Partner or the Special Limited Partner for the
purpose of providing funds to the Partnership.
"General Partner" means AIMCO-GP, Inc., a Delaware corporation, and its
successors and assigns, as the general partner of the Partnership in their
capacities as general partner of the Partnership.
"General Partner Interest" means the Partnership Interest held by the
General Partner, which Partnership Interest is an interest as a general partner
under the Act. A General Partner Interest may be expressed as a number of
Partnership Common Units, Partnership Preferred Units or any other Partnership
Units.
"General Partner Loan" has the meaning set forth in Section 4.3.D hereof.
"Gross Asset Value" means, with respect to any asset, the asset's adjusted
basis for federal income tax purposes, except as follows:
(a) The initial Gross Asset Value of any asset contributed by a
Partner to the Partnership shall be the gross fair market values of such
assets as determined by the General Partner and agreed to by the
contributing Partner. In any case in which the General Partner and the
contributing Partner are unable to agree as to the gross fair market value
of any contributed asset or assets, such gross fair market value shall be
determined by Appraisal.
(b) The Gross Asset Values of all Partnership assets immediately prior
to the occurrence of any event described in clause (i), clause (ii), clause
(iii), clause (iv) or clause (v) hereof shall be adjusted to equal their
respective gross fair market values, as determined by the General Partner
using such reasonable method of valuation as it may adopt, as of the
following times:
(i) the acquisition of an additional interest in the Partnership
(other than in connection with the execution of this Agreement but
including, without limitation, acquisitions pursuant to Section 4.2
hereof or contributions or deemed contributions by the General Partner
pursuant to Section 4.2 hereof) by a new or existing Partner in exchange
for more than a de minimis Capital Contribution, if the General Partner
reasonably determines that such adjustment is necessary or appropriate
to reflect the relative economic interests of the Partners in the
Partnership;
(ii) the distribution by the Partnership to a Partner of more than
a de minimis amount of Partnership property as consideration for an
interest in the Partnership, if the General Partner reasonably
determines that such adjustment is necessary or appropriate to reflect
the relative economic interests of the Partners in the Partnership;
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(iii) the liquidation of the Partnership within the meaning of
Regulations Section 1.704-1(b)(2)(ii)(g);
(iv) upon the admission of a successor General Partner pursuant to
Section 12.1 hereof; and
(v) at such other times as the General Partner shall reasonably
determine necessary or advisable in order to comply with Regulations
Sections 1.704-1(b) and 1.704-2.
(c) The Gross Asset Value of any Partnership asset distributed to a
Partner shall be the gross fair market value of such asset on the date of
distribution as determined by the distributee and the General Partner
provided that, if the distributee is the General Partner or if the
distributee and the General Partner cannot agree on such a determination,
such gross fair market value shall be determined by Appraisal.
(d) The Gross Asset Values of Partnership assets shall be increased
(or decreased) to reflect any adjustments to the adjusted basis of such
assets pursuant to Code Section 734(b) or Code Section 743(b), but only to
the extent that such adjustments are taken into account in determining
Capital Accounts pursuant to Regulations Section 1.704-1(b)(2)(iv)(m);
provided, however, that Gross Asset Values shall not be adjusted pursuant
to this subsection (d) to the extent that the General Partner reasonably
determines that an adjustment pursuant to subsection (b) above is necessary
or appropriate in connection with a transaction that would otherwise result
in an adjustment pursuant to this subsection (d).
(e) If the Gross Asset Value of a Partnership asset has been
determined or adjusted pursuant to subsection (a), subsection (b) or
subsection (d) above, such Gross Asset Value shall thereafter be adjusted
by the Depreciation taken into account with respect to such asset for
purposes of computing Net Income and Net Losses.
"Holder" means either (a) a Partner or (b) an Assignee, owning a
Partnership Unit, that is treated as a member of the Partnership for federal
income tax purposes.
"Incapacity" or "Incapacitated" means, (i) as to any Partner who is an
individual, death, total physical disability or entry by a court of competent
jurisdiction adjudicating such Partner incompetent to manage his or her person
or his or her estate; (ii) as to any Partner that is a corporation or limited
liability company, the filing of a certificate of dissolution, or its
equivalent, for the corporation or the revocation of its charter; (iii) as to
any Partner that is a partnership, the dissolution and commencement of winding
up of the partnership; (iv) as to any Partner that is an estate, the
distribution by the fiduciary of the estate's entire interest in the
Partnership; (v) as to any trustee of a trust that is a Partner, the termination
of the trust (but not the substitution of a new trustee); or (vi) as to any
Partner, the bankruptcy of such Partner. For purposes of this definition,
bankruptcy of a Partner shall be deemed to have occurred when (a) the Partner
commences a voluntary proceeding seeking liquidation, reorganization or other
relief of or against such Partner under any bankruptcy, insolvency or other
similar law now or hereafter in effect, (b) the Partner is adjudged as bankrupt
or insolvent, or a final and nonappealable order for relief under any
bankruptcy, insolvency or similar law now or hereafter in effect has been
entered against the Partner, (c) the Partner executes and delivers a general
assignment for the benefit of the Partner's creditors, (d) the Partner files an
answer or other pleading admitting or failing to contest the material
allegations of a petition filed against the Partner in any proceeding of the
nature described in clause (b) above, (e) the Partner seeks, consents to or
acquiesces in the appointment of a trustee, receiver or liquidator for the
Partner or for all or any substantial part of the Partner's properties, (f) any
proceeding seeking liquidation, reorganization or other relief under any
bankruptcy, insolvency or other similar law now or hereafter in effect has not
been dismissed within one hundred twenty (120) days after the commencement
thereof, (g) the appointment without the Partner's consent or acquiescence of a
trustee, receiver or liquidator has not been vacated or stayed within ninety
(90) days of such appointment, or (h) an appointment referred to in clause (g)
above is not vacated within ninety (90) days after the expiration of any such
stay.
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"Indemnitee" means (i) any Person made a party to a proceeding by reason of
its status as (A) the Previous General Partner or the General Partner or (B) a
director of the Previous General Partner or the General Partner or an officer or
employee of the Partnership or the Previous General Partner or the General
Partner and (ii) such other Persons (including Affiliates of the General Partner
or the Partnership) as the General Partner may designate from time to time
(whether before or after the event giving rise to potential liability), in its
sole and absolute discretion.
"Independent Director" has the meaning ascribed thereto in the Previous
General Partner's 1994 Stock Option Plan.
"Interest" means interest, original issue discount and other similar
payments or amounts paid by the Partnership for the use or forbearance of money.
"IRS" means the Internal Revenue Service, which administers the internal
revenue laws of the United States.
"Junior Share" means a share of the Previous General Partner's Class B
Common Stock, par value $.01 per share.
"Limited Partner" means the Special Limited Partner and any Person named as
a Limited Partner in Exhibit A attached hereto, as such Exhibit A may be amended
from time to time, or any Substituted Limited Partner or Additional Limited
Partner, in such Person's capacity as a Limited Partner in the Partnership.
"Limited Partner Interest" means a Partnership Interest of a Limited
Partner in the Partnership representing a fractional part of the Partnership
Interests of all Limited Partners and includes any and all benefits to which the
holder of such a Partnership Interest may be entitled as provided in this
Agreement, together with all obligations of such Person to comply with the terms
and provisions of this Agreement. A Limited Partner Interest may be expressed as
a number of Partnership Common Units, Partnership Preferred Units or other
Partnership Units.
"Liquidating Event" has the meaning set forth in Section 13.1 hereof.
"Liquidator" has the meaning set forth in Section 13.2.A hereof.
"Majority in Interest of the Limited Partners" means Limited Partners
(other than (i) the Special Limited Partner and (ii) any Limited Partner fifty
percent (50%) or more of whose equity is owned, directly or indirectly, by the
(a) General Partner or (b) any REIT as to which the General Partner is a
"qualified REIT subsidiary" (within the meaning of Code Section 856(i)(2)))
holding more than fifty percent (50%) of the outstanding Partnership Common
Units and Class I High Performance Partnership Units held by all Limited
Partners (other than (i) the Special Limited Partner and (ii) any Limited
Partner fifty percent (50%) or more of whose equity is owned, directly or
indirectly, by (a) the General Partner or (b) any REIT as to which the General
Partner is a "qualified REIT subsidiary" (within the meaning of Code Section
856(i)(2))).
"Net Income" or "Net Loss" means, for each Fiscal Year of the Partnership,
an amount equal to the Partnership's taxable income or loss for such year,
determined in accordance with Code Section 703(a) (for this purpose, all items
of income, gain, loss or deduction required to be stated separately pursuant to
Code Section 703(a)(1) shall be included in taxable income or loss), with the
following adjustments:
(a) Any income of the Partnership that is exempt from federal income
tax and not otherwise taken into account in computing Net Income (or Net
Loss) pursuant to this definition of "Net Income" or "Net Loss" shall be
added to (or subtracted from, as the case may be) such taxable income (or
loss);
(b) Any expenditure of the Partnership described in Code Section
705(a)(2)(B) or treated as a Code Section 705(a)(2)(B) expenditure pursuant
to Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into
account in computing Net Income (or Net Loss) pursuant to this definition
of "Net Income" or "Net Loss," shall be subtracted from (or added to, as
the case may be) such taxable income (or loss);
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(c) In the event the Gross Asset Value of any Partnership asset is
adjusted pursuant to subsection (b) or subsection (c) of the definition of
"Gross Asset Value," the amount of such adjustment shall be taken into
account as gain or loss from the disposition of such asset for purposes of
computing Net Income or Net Loss;
(d) Gain or loss resulting from any disposition of property with
respect to which gain or loss is recognized for federal income tax purposes
shall be computed by reference to the Gross Asset Value of the property
disposed of, notwithstanding that the adjusted tax basis of such property
differs from its Gross Asset Value;
(e) In lieu of the depreciation, amortization and other cost recovery
deductions that would otherwise be taken into account in computing such
taxable income or loss, there shall be taken into account Depreciation for
such Fiscal Year;
(f) To the extent that an adjustment to the adjusted tax basis of any
Partnership asset pursuant to Code Section 734(b) or Code Section 743(b) is
required pursuant to Regulations Section 1.704-1(b)(2)(iv)(m)(4) to be
taken into account in determining Capital Accounts as a result of a
distribution other than in liquidation of a Partner's interest in the
Partnership, the amount of such adjustment shall be treated as an item of
gain (if the adjustment increases the basis of the asset) or loss (if the
adjustment decreases the basis of the asset) from the disposition of the
asset and shall be taken into account for purposes of computing Net Income
or Net Loss; and
(g) Notwithstanding any other provision of this definition of "Net
Income" or "Net Loss," any item that is specially allocated pursuant to
Section 6.3 hereof shall not be taken into account in computing Net Income
or Net Loss. The amounts of the items of Partnership income, gain, loss or
deduction available to be specially allocated pursuant to Section 6.3
hereof shall be determined by applying rules analogous to those set forth
in this definition of "Net Income" or "Net Loss."
"New Securities" means (i) any rights, options, warrants or convertible or
exchangeable securities having the right to subscribe for or purchase REIT
Shares or Preferred Shares, excluding Junior Shares, Preferred Shares and grants
under the Previous General Partner's Stock Option Plans, or (ii) any Debt issued
by the Previous General Partner that provides any of the rights described in
clause (i).
"Nonrecourse Deductions" has the meaning set forth in Regulations Section
1.704-2(b)(1), and the amount of Nonrecourse Deductions for a Fiscal Year shall
be determined in accordance with the rules of Regulations Section 1.704-2(c).
"Nonrecourse Liability" has the meaning set forth in Regulations Section
1.752-1(a)(2).
"Notice of Redemption" means the Notice of Redemption substantially in the
form of Exhibit E attached to this Agreement.
"Optionee" means a Company Employee, Partnership Employee or Independent
Director to whom a stock option is granted under the Previous General Partner's
Stock Option Plans.
"Original Limited Partners" means the Persons listed as the Limited
Partners on Exhibit A originally attached to this Agreement, without regard to
any amendment thereto, and does not include any Assignee or other transferee,
including, without limitation, any Substituted Limited Partner succeeding to all
or any part of the Partnership Interest of any such Person.
"Ownership Limit" means the applicable restriction on ownership of shares
of the Previous General Partner imposed under the Charter.
"Partner" means the General Partner or a Limited Partner, and "Partners"
means the General Partner and the Limited Partners.
"Partner Minimum Gain" means an amount, with respect to each Partner
Nonrecourse Debt, equal to the Partnership Minimum Gain that would result if
such Partner Nonrecourse Debt were treated as a Nonrecourse Liability,
determined in accordance with Regulations Section 1.704-2(i)(3).
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"Partner Nonrecourse Debt" has the meaning set forth in Regulations Section
1.704-2(b)(4).
"Partner Nonrecourse Deductions" has the meaning set forth in Regulations
Section 1.704-2(i)(2), and the amount of Partner Nonrecourse Deductions with
respect to a Partner Nonrecourse Debt for a Fiscal Year shall be determined in
accordance with the rules of Regulations Section 1.704-2(i)(2).
"Partnership" means the limited partnership formed under the Act and
pursuant to this Agreement, and any successor thereto.
"Partnership Common Unit" means a fractional share of the Partnership
Interests of all Partners issued pursuant to Sections 4.1 and 4.2 hereof, but
does not include any Partnership Preferred Unit or any other Partnership Unit
specified in a Partnership Unit Designation as being other than a Partnership
Common Unit; provided, however, that the General Partner Interest and the
Limited Partner Interests shall have the differences in rights and privileges as
specified in this Agreement. The ownership of Partnership Common Units may (but
need not, in the sole and absolute discretion of the General Partner) be
evidenced by the form of certificate for Partnership Common Units attached
hereto as Exhibit F.
"Partnership Employee" has the meaning ascribed thereto in the Previous
General Partner's 1994 Stock Option Plan.
"Partnership Interest" means an ownership interest in the Partnership held
by either a Limited Partner or the General Partner and includes any and all
benefits to which the holder of such a Partnership Interest may be entitled as
provided in this Agreement, together with all obligations of such Person to
comply with the terms and provisions of this Agreement. A Partnership Interest
may be expressed as a number of Partnership Common Units, Partnership Preferred
Units or other Partnership Units.
"Partnership Minimum Gain" has the meaning set forth in Regulations Section
1.704-2(b)(2), and the amount of Partnership Minimum Gain, as well as any net
increase or decrease in Partnership Minimum Gain, for a Fiscal Year shall be
determined in accordance with the rules of Regulations Section 1.704-2(d).
"Partnership Preferred Unit" means a fractional share of the Partnership
Interests that the General Partner has authorized pursuant to Section 4.2 hereof
that has distribution rights, or rights upon liquidation, winding up and
dissolution, that are superior or prior to the Partnership Common Units.
"Partnership Record Date" means the record date established by the General
Partner for the distribution of Available Cash pursuant to Section 5.1 hereof,
which record date shall generally be the same as the record date established by
the Previous General Partner for a distribution to its shareholders of some or
all of its portion of such distribution.
"Partnership Subsidiary" has the meaning ascribed thereto in the Apartment
Investment and Management Company 1997 Stock Award and Incentive Plan.
"Partnership Unit" shall mean a Partnership Common Unit, a Partnership
Preferred Unit or any other fractional share of the Partnership Interests that
the General Partner has authorized pursuant to Section 4.2 hereof.
"Partnership Unit Designation" shall have the meaning set forth in Section
4.2 hereof.
"Percentage Interest" means, as to each Partner, its interest in the
Partnership Units as determined by dividing the Partnership Units owned by such
Partner by the total number of Partnership Units then outstanding.
"Permitted Transfer" has the meaning set forth in Section 11.3.A hereof.
"Person" means an individual or a corporation, partnership, trust,
unincorporated organization, association, limited liability company or other
entity.
"Pledge" has the meaning set forth in Section 11.3.A hereof.
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"Preferred Share" means a share of capital stock of the Previous General
Partner now or hereafter authorized or reclassified that has dividend rights, or
rights upon liquidation, winding up and dissolution, that are superior or prior
to the REIT Shares.
"Previous General Partner" means Apartment Investment and Management
Company, a Maryland corporation.
"Previous General Partner's 1994 Stock Option Plan" means the 1994 Stock
Option Plan of Apartment Investment and Management Company and Affiliates.
"Previous General Partner's Stock Option Plans" means the Previous General
Partner's 1994 Stock Option Plan, the Apartment Investment and Management
Company 1996 Stock Award and Incentive Plan, the Amended and Restated Apartment
Investment and Management Company Non-Qualified Employee Stock Option Plan, the
Apartment Investment and Management Company 1997 Stock Award and Incentive Plan
and any other stock option plan adopted by the Previous General Partner.
"Primary Offering Notice" has the meaning set forth in Section 8.6.F(4)
hereof.
"Properties" means any assets and property of the Partnership such as, but
not limited to, interests in real property and personal property, including,
without limitation, fee interests, interests in ground leases, interests in
limited liability companies, joint ventures or partnerships, interests in
mortgages, and Debt instruments as the Partnership may hold from time to time.
"Public Offering Funding" has the meaning set forth in Section 8.6.D(2)
hereof.
"Public Offering Funding Amount" means the dollar amount equal to (i) the
product of (x) the number of Registrable Shares sold in a Public Offering
Funding and (y) the public offering price per share of such Registrable Shares
in such Public Offering Funding, less (ii) the aggregate underwriting discounts
and commissions in such Public Offering Funding.
"Qualified Transferee" means an "accredited investor" as defined in Rule
501 promulgated under the Securities Act.
"Qualifying Party" means (a) an Original Limited Partner, (b) an Additional
Limited Partner, (c) a Designated Party that is either a Substituted Limited
Partner or an Assignee, (d) a Family Member, or a lending institution as the
pledgee of a Pledge, who is the transferee in a Permitted Transfer or (e) with
respect to any Notice of Redemption delivered to the General Partner within the
time period set forth in Section 11.3.A(4) hereof, a Substituted Limited Partner
succeeding to all or part of the Limited Partner Interest of (i) an Original
Limited Partner, (ii) an Additional Limited Partner, (iii) a Designated Party
that is either a Substituted Limited Partner or an Assignee or (iv) a Family
Member, or a lending institution who is the pledgee of a Pledge, who is the
transferee in a Permitted Transfer.
"Redeemable Units" means those Partnership Common Units issued to the
Original Limited Partners as of the Effective Date together with such additional
Partnership Common Units that, after the Effective Date, may be issued to
Additional Limited Partners pursuant to Section 4.2 hereof.
"Redemption" has the meaning set forth in Section 8.6.A hereof.
"Registrable Shares" has the meaning set forth in Section 8.6.D(2) hereof.
"Regulations" means the applicable income tax regulations under the Code,
whether such regulations are in proposed, temporary or final form, as such
regulations may be amended from time to time (including corresponding provisions
of succeeding regulations).
"Regulatory Allocations" has the meaning set forth in Section 6.3.B(viii)
hereof.
"REIT" means a real estate investment trust qualifying under Code Section
856.
"REIT Partner" means (a) a Partner that is, or has made an election to
qualify as, a REIT, (b) any "qualified REIT subsidiary" (within the meaning of
Code Section 856(i)(2)) of any Partner that is, or has made an election to
qualify as, a REIT and (c) any Partner, including, without limitation, the
General Partner
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and the Special Limited Partner, that is a "qualified REIT subsidiary" (within
the meaning of Code Section 856(i)(2)) of a REIT.
"REIT Payment" has the meaning set forth in Section 15.11 hereof.
"REIT Requirements" has the meaning set forth in Section 5.1.A hereof.
"REIT Share" means a share of the Previous General Partner's Class A Common
Stock, par value $.01 per share. Where relevant in this Agreement, "REIT
Shares" includes shares of the Previous General Partner's Class A Common Stock,
par value $.01 per share, issued upon conversion of Preferred Shares or Junior
Shares.
"REIT Shares Amount" means a number of REIT Shares equal to the product of
(a) the number of Tendered Units and (b) the Adjustment Factor; provided,
however, that, in the event that the Previous General Partner issues to all
holders of REIT Shares as of a certain record date rights, options, warrants or
convertible or exchangeable securities entitling the Previous General Partner's
shareholders to subscribe for or purchase REIT Shares, or any other securities
or property (collectively, the "Rights"), with the record date for such Rights
issuance falling within the period starting on the date of the Notice of
Redemption and ending on the day immediately preceding the Specified Redemption
Date, which Rights will not be distributed before the relevant Specified
Redemption Date, then the REIT Shares Amount shall also include such Rights that
a holder of that number of REIT Shares would be entitled to receive, expressed,
where relevant hereunder, in a number of REIT Shares determined by the Previous
General Partner in good faith.
"Related Party" means, with respect to any Person, any other Person whose
ownership of shares of the Previous General Partner's capital stock would be
attributed to the first such Person under Code Section 544 (as modified by Code
Section 856(h)(1)(B)).
"Rights" has the meaning set forth in the definition of "REIT Shares
Amount."
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the SEC promulgated thereunder.
"Single Funding Notice" has the meaning set forth in Section 8.6.D(3)
hereof.
"Special Limited Partner" means AIMCO-LP, Inc., a Delaware corporation.
"Specified Redemption Date" means the later of (a) the tenth (10th)
Business Day after the receipt by the General Partner of a Notice of Redemption
or (b) in the case of a Declination followed by a Public Offering Funding, the
Business Day next following the date of the closing of the Public Offering
Funding; provided, however, that no Specified Redemption Date shall occur during
the first Twelve-Month Period; provided, further, that the Specified Redemption
Date, as well as the closing of Redemption, or an acquisition of Tendered Units
by the Previous General Partner pursuant to Section 8.6.B hereof, on any
Specified Redemption Date, may be deferred, in the General Partner's sole and
absolute discretion, for such time (but in any event not more than one hundred
fifty (150) days in the aggregate) as may reasonably be required to effect, as
applicable, (i) a Public Offering Funding or other necessary funding
arrangements, (ii) compliance with the Securities Act or other law (including,
but not limited to, (a) state "blue sky" or other securities laws and (b) the
expiration or termination of the applicable waiting period, if any, under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended) and (iii)
satisfaction or waiver of other commercially reasonable and customary closing
conditions and requirements for a transaction of such nature.
"Subsidiary" means, with respect to any Person, any corporation or other
entity of which a majority of (i) the voting power of the voting equity
securities or (ii) the outstanding equity interests is owned, directly or
indirectly, by such Person; provided, however, that, with respect to the
Partnership, "Subsidiary" means solely a partnership or limited liability
company (taxed, for federal income tax purposes, as a partnership and not as an
association or publicly traded partnership taxable as a corporation) of which
the Partnership is a member unless the General Partner has received an
unqualified opinion from independent counsel of recognized standing, or a ruling
from the IRS, that the ownership of shares of stock of a corporation or other
entity will
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not jeopardize the Previous General Partner's status as a REIT or the General
Partner's or the Special Limited Partner's status as a "qualified REIT
subsidiary" (within the meaning of Code Section 856(i)(2)), in which event the
term "Subsidiary" shall include the corporation or other entity which is the
subject of such opinion or ruling.
"Substituted Limited Partner" means a Person who is admitted as a Limited
Partner to the Partnership pursuant to Section 11.4 hereof.
"Tax Items" has the meaning set forth in Section 6.4.A hereof.
"Tendered Units" has the meaning set forth in Section 8.6.A hereof.
"Tendering Party" has the meaning set forth in Section 8.6.A hereof.
"Terminating Capital Transaction" means any sale or other disposition of
all or substantially all of the assets of the Partnership or a related series of
transactions that, taken together, result in the sale or other disposition of
all or substantially all of the assets of the Partnership.
"Transfer," when used with respect to a Partnership Unit, or all or any
portion of a Partnership Interest, means any sale, assignment, bequest,
conveyance, devise, gift (outright or in trust), Pledge, encumbrance,
hypothecation, mortgage, exchange, transfer or other disposition or act of
alienation, whether voluntary or involuntary or by operation of law; provided,
however, that when the term is used in Article 11 hereof, "Transfer" does not
include (a) any Redemption of Partnership Common Units by the Partnership, or
acquisition of Tendered Units by the Previous General Partner, pursuant to
Section 8.6 hereof or (b) any redemption of Partnership Units pursuant to any
Partnership Unit Designation. The terms "Transferred" and "Transferring" have
correlative meanings.
"Twelve-Month Period" means (a) as to an Original Limited Partner or any
successor-in-interest that is a Qualifying Party, a twelve-month period ending
on the day before the first (1st) anniversary of the Effective Date or on the
day before a subsequent anniversary thereof and (b) as to any other Qualifying
Party, a twelve-month period ending on the day before the first (1st)
anniversary of such Qualifying Party's becoming a Holder of Partnership Common
Units or on the day before a subsequent anniversary thereof; provided, however,
that the General Partner may, in its sole and absolute discretion, by written
agreement with a Qualifying Party, shorten the first Twelve-Month Period to a
period of less than twelve (12) months with respect to a Qualifying Party other
than an Original Limited Partner or successor-in-interest.
"Unitholder" means the General Partner or any Holder of Partnership Units.
"Valuation Date" means the date of receipt by the General Partner of a
Notice of Redemption or, if such date is not a Business Day, the immediately
preceding Business Day.
"Value" means, on any Valuation Date with respect to a REIT Share, the
average of the daily market prices for ten (10) consecutive trading days
immediately preceding the Valuation Date (except that, as provided in Section
4.4.C. hereof, the market price for the trading day immediately preceding the
date of exercise of a stock option under the Previous General Partner's Stock
Option Plans shall be substituted for such average of daily market prices for
purposes of Section 4.4 hereof). The market price for any such trading day shall
be:
(i) if the REIT Shares are listed or admitted to trading on any
securities exchange or The Nasdaq Stock Market's National Market System,
the closing price, regular way, on such day, or if no such sale takes place
on such day, the average of the closing bid and asked prices on such day,
in either case as reported in the principal consolidated transaction
reporting system,
(ii) if the REIT Shares are not listed or admitted to trading on any
securities exchange or The Nasdaq Stock Market's National Market System,
the last reported sale price on such day or, if no sale takes place on such
day, the average of the closing bid and asked prices on such day, as
reported by a reliable quotation source designated by the General Partner,
or
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(iii) if the REIT Shares are not listed or admitted to trading on any
securities exchange or The Nasdaq Stock Market's National Market System and
no such last reported sale price or closing bid and asked prices are
available, the average of the reported high bid and low asked prices on
such day, as reported by a reliable quotation source designated by the
General Partner, or if there shall be no bid and asked prices on such day,
the average of the high bid and low asked prices, as so reported, on the
most recent day (not more than ten (10) days prior to the date in question)
for which prices have been so reported;
provided, however, that, if there are no bid and asked prices reported during
the ten (10) days prior to the date in question, the Value of the REIT Shares
shall be determined by the General Partner acting in good faith on the basis of
such quotations and other information as it considers, in its reasonable
judgment, appropriate. In the event that the REIT Shares Amount includes Rights
(as defined in the definition of "REIT Shares Amount") that a holder of REIT
Shares would be entitled to receive, then the Value of such Rights shall be
determined by the General Partner acting in good faith on the basis of such
quotations and other information as it considers, in its reasonable judgment,
appropriate.
ARTICLE 2
ORGANIZATIONAL MATTERS
Section 2.1 Organization. The Partnership is a limited partnership
organized pursuant to the provisions of the Act and upon the terms and subject
to the conditions set forth in this Agreement. Except as expressly provided
herein to the contrary, the rights and obligations of the Partners and the
administration and termination of the Partnership shall be governed by the Act.
The Partnership Interest of each Partner shall be personal property for all
purposes.
Section 2.2 Name. The name of the Partnership is "AIMCO Properties, L.P."
The Partnership's business may be conducted under any other name or names deemed
advisable by the General Partner, including the name of the General Partner or
any Affiliate thereof. The words "Limited Partnership," "L.P.," "Ltd." or
similar words or letters shall be included in the Partnership's name where
necessary for the purposes of complying with the laws of any jurisdiction that
so requires. The General Partner in its sole and absolute discretion may change
the name of the Partnership at any time and from time to time and shall notify
the Partners of such change in the next regular communication to the Partners.
Section 2.3 Registered Office and Agent; Principal Office. The address of
the registered office of the Partnership in the State of Delaware is located at
32 Lockerman Square, Suite L-100, Dover, Delaware 19901, and the registered
agent for service of process on the Partnership in the State of Delaware at such
registered office is The Prentice-Hall Corporation System, Inc. The principal
office of the Partnership is located at 1873 South Bellaire Street, Denver,
Colorado 80222, or such other place as the General Partner may from time to time
designate by notice to the Limited Partners. The Partnership may maintain
offices at such other place or places within or outside the State of Delaware as
the General Partner deems advisable.
Section 2.4 Power of Attorney.
A. Each Limited Partner and each Assignee hereby irrevocably constitutes
and appoints the General Partner, any Liquidator, and authorized officers and
attorneys-in-fact of each, and each of those acting singly, in each case with
full power of substitution, as its true and lawful agent and attorney-in-fact,
with full power and authority in its name, place and stead to:
(1) execute, swear to, seal, acknowledge, deliver, file and record in
the appropriate public offices (a) all certificates, documents and other
instruments (including, without limitation, this Agreement and the
Certificate and all amendments, supplements or restatements thereof) that
the General Partner or the Liquidator deems appropriate or necessary to
form, qualify or continue the existence or qualification of the Partnership
as a limited partnership (or a partnership in which the limited partners
have limited liability to the extent provided by applicable law) in the
State of Delaware and in all other jurisdictions in which the Partnership
may conduct business or own property; (b) all instruments that the General
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Partner deems appropriate or necessary to reflect any amendment, change,
modification or restatement of this Agreement in accordance with its terms;
(c) all conveyances and other instruments or documents that the General
Partner or the Liquidator deems appropriate or necessary to reflect the
dissolution and liquidation of the Partnership pursuant to the terms of
this Agreement, including, without limitation, a certificate of
cancellation; (d) all conveyances and other instruments or documents that
the General Partner or the Liquidator deems appropriate or necessary to
reflect the distribution or exchange of assets of the Partnership pursuant
to the terms of this Agreement; (e) all instruments relating to the
admission, withdrawal, removal or substitution of any Partner pursuant to,
or other events described in, Article 11, Article 12 or Article 13 hereof
or the Capital Contribution of any Partner; and (f) all certificates,
documents and other instruments relating to the determination of the
rights, preferences and privileges relating to Partnership Interests; and
(2) execute, swear to, acknowledge and file all ballots, consents,
approvals, waivers, certificates and other instruments appropriate or
necessary, in the sole and absolute discretion of the General Partner, to
make, evidence, give, confirm or ratify any vote, consent, approval,
agreement or other action that is made or given by the Partners hereunder
or is consistent with the terms of this Agreement or appropriate or
necessary, in the sole and absolute discretion of the General Partner,
effectuate the terms or intent of this Agreement.
Nothing contained herein shall be construed as authorizing the General Partner
to amend this Agreement except in accordance with Article 14 hereof or as may be
otherwise expressly provided for in this Agreement.
B. The foregoing power of attorney is hereby declared to be irrevocable and
a special power coupled with an interest, in recognition of the fact that each
of the Limited Partners and Assignees will be relying upon the power of the
General Partner or the Liquidator to act as contemplated by this Agreement in
any filing or other action by it on behalf of the Partnership, and it shall
survive and not be affected by the subsequent Incapacity of any Limited Partner
or Assignee and the Transfer all or any portion of such Limited Partner's or
Assignee's Partnership Units or Partnership Interest and shall extend to such
Limited Partner's or Assignee's heirs, successors, assigns and personal
representatives. Each such Limited Partner or Assignee hereby agrees to be bound
by any representation made by the General Partner or the Liquidator, acting in
good faith pursuant to such power of attorney; and each such Limited Partner or
Assignee hereby waives any and all defenses that may be available to contest,
negate or disaffirm the action of the General Partner or the Liquidator, taken
in good faith under such power of attorney. Each Limited Partner or Assignee
shall execute and deliver to the General Partner or the Liquidator, within
fifteen (15) days after receipt of the General Partner's or the Liquidator's
request therefor, such further designation, powers of attorney and other
instruments as the General Partner or the Liquidator, as the case may be, deems
necessary to effectuate this Agreement and the purposes of the Partnership.
Section 2.5 Term. The term of the Partnership commenced on May 16, 1994,
the date that the original Certificate was filed in the office of the Secretary
of State of Delaware in accordance with the Act, and shall continue until
December 31, 2093 unless the Partnership is dissolved sooner pursuant to the
provisions of Article 13 hereof or as otherwise provided by law.
ARTICLE 3
PURPOSE
Section 3.1 Purpose and Business. The purpose and nature of the
Partnership is to conduct any business, enterprise or activity permitted by or
under the Act, including, but not limited to, (i) to conduct the business of
ownership, construction, development and operation of multifamily rental
apartment communities, (ii) to enter into any partnership, joint venture,
business trust arrangement, limited liability company or other similar
arrangement to engage in any business permitted by or under the Act, or to own
interests in any entity engaged in any business permitted by or under the Act,
(iii) to conduct the business of providing property and asset management and
brokerage services, whether directly or through one or more partnerships, joint
ventures, subsidiaries, business trusts, limited liability companies or other
similar arrangements, and (iv) to do
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anything necessary or incidental to the foregoing; provided, however, such
business and arrangements and interests may be limited to and conducted in such
a manner as to permit the Previous General Partner, in the sole and absolute
discretion of the General Partner, at all times to be classified as a REIT.
Section 3.2 Powers.
A. The Partnership shall be empowered to do any and all acts and things
necessary, appropriate, proper, advisable, incidental to or convenient for the
furtherance and accomplishment of the purposes and business described herein and
for the protection and benefit of the Partnership.
B. Notwithstanding any other provision in this Agreement, the General
Partner may cause the Partnership not to take, or to refrain from taking, any
action that, in the judgment of the General Partner, in its sole and absolute
discretion, (i) could adversely affect the ability of the Previous General
Partner to continue to qualify as a REIT, (ii) could subject the Previous
General Partner to any additional taxes under Code Section 857 or Code Section
4981 or (iii) could violate any law regulation of any governmental body or
agency having jurisdiction over the Previous General Partner, the General
Partner, their securities or the Partnership, unless such action (or inaction)
under clause (i), clause (ii) or clause (iii) above shall have been specifically
consented to by the Previous General Partner and the General Partner in writing.
Section 3.3 Partnership Only for Purposes Specified. The Partnership shall
be a limited partnership only for the purposes specified in Section 3.1 hereof,
and this Agreement shall not be deemed to create a company, venture or
partnership between or among the Partners with respect to any activities
whatsoever other than the activities within the purposes of the Partnership as
specified in Section 3.1 hereof. Except as otherwise provided in this Agreement,
no Partner shall have any authority to act for, bind, commit or assume any
obligation or responsibility on behalf of the Partnership, its properties or any
other Partner. No Partner, in its capacity as a Partner under this Agreement,
shall be responsible or liable for any indebtedness or obligation of another
Partner, nor shall the Partnership be responsible or liable for any indebtedness
or obligation of any Partner, incurred either before or after the execution and
delivery of this Agreement by such Partner, except as to those responsibilities,
liabilities, indebtedness or obligations incurred pursuant to and as limited by
the terms of this Agreement and the Act.
Section 3.4 Representations and Warranties by the Parties.
A. Each Partner that is an individual (including, without limitation, each
Additional Limited Partner or Substituted Limited Partner as a condition to
becoming an Additional Limited Partner or a Substituted Limited Partner)
represents and warrants to each other Partner(s) that (i) the consummation of
the transactions contemplated by this Agreement to be performed by such Partner
will not result in a breach or violation of, or a default under, any material
agreement by which such Partner any of such Partner's property is bound, or any
statute, regulation, order or other law to which such Partner is subject, (ii)
such Partner is neither a "foreign person" within the meaning of Code Section
1445(f) nor a "foreign partner" within the meaning of Code Section 1446(e),
(iii) such Partner does not own, directly or indirectly, (a) five percent (5%)
or more of the total combined voting power of all classes of stock entitled to
vote, or five percent (5%) or more of the total number of shares of all classes
of stock, of any corporation that is a tenant of either (I) the Previous General
Partner, the General Partner, the Special Limited Partner or any "qualified REIT
subsidiary" (within the meaning of Code Section 856(i)(2)) with respect to the
Previous General Partner, (II) the Partnership or (III) any partnership, venture
or limited liability company of which the Previous General Partner, the General
Partner, the Special Limited Partner, any "qualified REIT subsidiary" (within
the meaning of Code Section 856(i)(2)) with respect to the Previous General
Partner or the Partnership is a member or (b) an interest of five percent (5%)
or more in the assets or net profits of any tenant of either (I) the Previous
General Partner, the General Partner, the Special Limited Partner or any
"qualified REIT subsidiary" (within the meaning of Code Section 856(i)(2)) with
respect to the Previous General Partner, (II) the Partnership or (III) any
partnership, venture, or limited liability company of which the Previous General
Partner, the General Partner, the Special Limited Partner, any "qualified REIT
subsidiary" (within the meaning of Code Section 856(i)(2)) with respect to the
Previous General Partner or the Partnership is a member and (iv) this Agreement
is binding upon, and enforceable against, such Partner in accordance with its
terms.
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B. Each Partner that is not an individual (including, without limitation,
each Additional Limited Partner or Substituted Limited Partner as a condition to
becoming an Additional Limited Partner or a Substituted Limited Partner)
represents and warrants to each other Partner(s) that (i) all transactions
contemplated by this Agreement to be performed by it have been duly authorized
by all necessary action, including, without limitation, that of its general
partner(s), committee(s), trustee(s), beneficiaries, directors and/or
shareholder(s), as the case may be, as required, (ii) the consummation of such
transactions shall not result in a breach or violation of, or a default under,
its partnership or operating agreement, trust agreement, charter or bylaws, as
the case may be, any material agreement by which such Partner or any of such
Partner's properties or any of its partners, members, beneficiaries, trustees or
shareholders, as the case may be, is or are bound, or any statute, regulation,
order or other law to which such Partner or any of its partners, members,
trustees, beneficiaries or shareholders, as the case may be, is or are subject,
(iii) such Partner is neither a "foreign person" within the meaning of Code
Section 1445(f) nor a "foreign partner" within the meaning of Code Section
1446(e), (iv) such Partner does not own, directly or indirectly, (a) five
percent (5%) or more of the total combined voting power of all classes of stock
entitled to vote, or five percent (5%) or more of the total number of shares of
all classes of stock, of any corporation that is a tenant of either (I) the
Previous General Partner, the General Partner, the Special Limited Partner or
any "qualified REIT subsidiary" (within the meaning of Code Section 856(i)(2))
with respect to the Previous General Partner, (II) the Partnership or (III) any
partnership, venture or limited liability company of which the Previous General
Partner, the General Partner, the Special Limited Partner, any "qualified REIT
subsidiary" (within the meaning of Code Section 856(i)(2)) with respect to the
Previous General Partner or the Partnership is a member or (b) an interest of
five percent (5%) or more in the assets or net profits of any tenant of either
(I) the Previous General Partner, the General Partner the Special Limited
Partner or any "qualified REIT subsidiary" (within the meaning of Code Section
856(i)(2)) with respect to the Previous General Partner, (II) the Partnership or
(III) any partnership, venture or limited liability company for which the
Previous General Partner, the General Partner, the Special Limited Partner, any
"qualified REIT subsidiary" (within the meaning of Code Section 856(i)(2)) with
respect to the Previous General Partner or the Partnership is a member and (v)
this Agreement is binding upon, and enforceable against, such Partner in
accordance with its terms.
C. Each Partner (including, without limitation, each Substituted Limited
Partner as a condition to becoming a Substituted Limited Partner) represents,
warrants and agrees that it has acquired and continues to hold its interest in
the Partnership for its own account for investment only and not for the purpose
of, or with a view toward, the resale or distribution of all or any part
thereof, nor with a view toward selling or otherwise distributing such interest
or any part thereof at any particular time or under any predetermined
circumstances. Each Partner further represents and warrants that it is a
sophisticated investor, able and accustomed to handling sophisticated financial
matters for itself, particularly real estate investments, and that it has a
sufficiently high net worth that it does not anticipate a need for the funds
that it has invested in the Partnership in what it understands to be a highly
speculative and illiquid investment.
D. The representations and warranties contained in Sections 3.4.A, 3.4.B
and 3.4.C hereof shall survive the execution and delivery of this Agreement by
each Partner (and, in the case of an Additional Limited Partner or a Substituted
Limited Partner, the admission of such Additional Limited Partner or Substituted
Limited Partner as a Limited Partner in the Partnership) and the dissolution,
liquidation and termination of the Partnership.
E. Each Partner (including, without limitation, each Substituted Limited
Partner as a condition to becoming a Substituted Limited Partner) hereby
acknowledges that no representations as to potential profit, cash flows, funds
from operations or yield, if any, in respect of the Partnership or the General
Partner have been made by any Partner or any employee or representative or
Affiliate of any Partner, and that projections and any other information,
including, without limitation, financial and descriptive information and
documentation, that may have been in any manner submitted to such Partner shall
not constitute any representation or warranty of any kind or nature, express or
implied.
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ARTICLE 4
CAPITAL CONTRIBUTIONS
Section 4.1 Capital Contributions of the Partners. The Partners have
heretofore made Capital Contributions to the Partnership. Each Partner owns
Partnership Units in the amount set forth for such Partner on Exhibit A, as the
same may be amended from time to time by the General Partner to the extent
necessary to reflect accurately sales, exchanges or other Transfers,
redemptions, Capital Contributions, the issuance of additional Partnership
Units, or similar events having an effect on a Partner's ownership of
Partnership Units. Except as provided by law or in Section 4.2, 4.3 or 10.4
hereof, the Partners shall have no obligation or right to make any additional
Capital Contributions or loans to the Partnership.
Section 4.2 Issuances of Additional Partnership Interests.
A. General. The General Partner is hereby authorized to cause the
Partnership to issue additional Partnership Interests, in the form of
Partnership Units, for any Partnership purpose, at any time or from time to
time, to the Partners (including the General Partner and the Special Limited
Partner) or to other Persons, and to admit such Persons as Additional Limited
Partners, for such consideration and on such terms and conditions as shall be
established by the General Partner in its sole and absolute discretion, all
without the approval of any Limited Partners. Without limiting the foregoing,
the General Partner is expressly authorized to cause the Partnership to issue
Partnership Units (i) upon the conversion, redemption or exchange of any Debt,
Partnership Units or other securities issued by the Partnership, (ii) for less
than fair market value, so long as the General Partner concludes in good faith
that such issuance is in the best interests of the General Partner and the
Partnership, and (iii) in connection with any merger of any other Person into
the Partnership if the applicable merger agreement provides that Persons are to
receive Partnership Units in exchange for their interests in the Person merging
into the Partnership. Subject to Delaware law, any additional Partnership
Interests may be issued in one or more classes, or one or more series of any of
such classes, with such designations, preferences and relative, participating,
optional or other special rights, powers and duties as shall be determined by
the General Partner, in its sole and absolute discretion without the approval of
any Limited Partner, and set forth in a written document thereafter attached to
and made an exhibit to this Agreement (each, a "Partnership Unit Designation").
Without limiting the generality of the foregoing, the General Partner shall have
authority to specify (a) the allocations of items of Partnership income, gain,
loss, deduction and credit to each such class or series of Partnership
Interests; (b) the right of each such class or series of Partnership Interests
to share in Partnership distributions; (c) the rights of each such class or
series of Partnership Interests upon dissolution and liquidation of the
Partnership; (d) the voting rights, if any, of each such class or series of
Partnership Interests; and (e) the conversion, redemption or exchange rights
applicable to each such class or series of Partnership Interests. Upon the
issuance of any additional Partnership Interest, the General Partner shall amend
Exhibit A as appropriate to reflect such issuance.
B. Issuances to the General Partner or Special Limited Partner. No
additional Partnership Units shall be issued to the General Partner or the
Special Limited Partner unless (i) the additional Partnership Units are issued
to all Partners in proportion to their respective Percentage Interests, (ii) (a)
the additional Partnership Units are (x) Partnership Common Units issued in
connection with an issuance of REIT Shares, or (y) Partnership Units (other than
Partnership Common Units) issued in connection with an issuance of Preferred
Shares, New Securities or other interests in the Previous General Partner (other
than REIT Shares), which Preferred Shares, New Securities or other interests
have designations, preferences and other rights, terms and provisions that are
substantially the same as the designations, preferences and other rights, terms
and provisions of the additional Partnership Units issued to the General Partner
or the Special Limited Partner, and (b) the General Partner or the Special
Limited Partner, as the case may be, contributes to the Partnership the cash
proceeds or other consideration received in connection with the issuance of such
REIT Shares, Preferred Shares, New Securities or other interests in the Previous
General Partner, (iii) the additional Partnership Units are issued upon the
conversion, redemption or exchange of Debt, Partnership Units or other
securities issued by the Partnership, or (iv) the additional Partnership Units
are issued pursuant to Section 4.6.
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C. No Preemptive Rights. No Person, including, without limitation, any
Partner or Assignee, shall have any preemptive, preferential, participation or
similar right or rights to subscribe for or acquire any Partnership Interest.
Section 4.3 Additional Funds.
A. General. The General Partner may, at any time and from time to time,
determine that the Partnership requires additional funds ("Additional Funds")
for the acquisition or development of additional Properties, for the redemption
of Partnership Units or for such other purposes as the General Partner may
determine. Additional Funds may be obtained by the Partnership, at the election
of the General Partner, in any manner provided in, and in accordance with, the
terms of this Section 4.3 without the approval of any Limited Partners.
B. Additional Capital Contributions. The General Partner, on behalf of the
Partnership, may obtain any Additional Funds by accepting Capital Contributions
from any Partners or other Persons and issuing additional Partnership Units in
consideration therefor.
C. Loans by Third Parties. The General Partner, on behalf of the
Partnership, may obtain any Additional Funds by causing the Partnership to incur
Debt to any Person (other than the Previous General Partner, the General Partner
or the Special Limited Partner) upon such terms as the General Partner
determines appropriate, including making such Debt convertible, redeemable or
exchangeable for Partnership Units; provided, however, that the Partnership
shall not incur any such Debt if (i) breach, violation or default of such Debt
would be deemed to occur by virtue of the Transfer of any Partnership Interest,
or (ii) such Debt is recourse to any Partner (unless the Partner otherwise
agrees).
D. General Partner Loans. The General Partner, on behalf of the
Partnership, may obtain any Additional Funds by causing the Partnership to incur
Debt with the Previous General Partner, the General Partner or the Special
Limited Partner (each, a "General Partner Loan") if (i) such Debt is, to the
extent permitted by law, on substantially the same terms and conditions
(including interest rate, repayment schedule, and conversion, redemption,
repurchase and exchange rights) as Funding Deb incurred by the Previous General
Partner, the General Partner or the Special Limited Partner, the net proceeds of
which are loaned to the Partnership to provide such Additional Funds, or (ii)
such Debt is on terms and conditions no less favorable to the Partnership than
would be available to the Partnership from any third party; provided, however,
that the Partnership shall not incur any such Debt if (a) a breach, violation or
default of such Debt would be deemed to occur by virtue of the Transfer of any
Partnership Interest, or (b) such Debt is recourse to any Partner (unless the
Partner otherwise agrees).
E. Issuance of Securities by the Previous General Partner. The Previous
General Partner shall not issue any additional REIT Shares, Preferred Shares,
Junior Shares or New Securities unless (i) the Previous General Partner
contributes the cash proceeds or other consideration received from the issuance
of such additional REIT Shares, Preferred Shares, Junior Shares or New
Securities, as the case may be, and from the exercise of the rights contained in
any such additional New Securities, either or both of the General Partner and
the Special Limited Partner, and (ii) it or they, as the case may be, contribute
such cash proceeds or other consideration to the Partnership in exchange for (x)
in the case of an issuance of REIT Shares, Partnership Common Units, or (y) in
the case of an issuance of Preferred Shares, Junior Shares or New Securities,
Partnership Units with designations, preferences and other rights, terms and
provisions that are substantially the same as the designations, preferences and
other rights, terms and provisions of such Preferred Shares, Junior Shares or
New Securities; provided, however, that notwithstanding the foregoing, the
Previous General Partner may issue REIT Shares, Preferred Shares, Junior Shares
or New Securities (a) pursuant to Section 4.4 or Section 8.6.B hereof, (b)
pursuant to a dividend or distribution (including any stock split) of REIT
Shares, Preferred Shares, Junior Shares or New Securities to all of the holders
of REIT Shares, Preferred Shares, Junior Shares or New Securities, as the case
may be, (c) upon a conversion, redemption or exchange of Preferred Shares, (d)
upon a conversion of Junior Shares into REIT Shares, (e) upon a conversion,
redemption, exchange or exercise of New Securities, or (f) in connection with an
acquisition of a property or other asset to be owned, directly or indirectly, by
the Previous General Partner if the General Partner determines that such
acquisition is in the best interests of the Partnership. In the event of any
issuance
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of additional REIT Shares, Preferred Shares, Junior Shares or New Securities by
the Previous General Partner, and the contribution to the Partnership, by the
General Partner or the Special Limited Partner, of the cash proceeds or other
consideration received from such issuance, the Partnership shall pay the
Previous General Partner's expenses associated with such issuance, including any
underwriting discounts or commissions.
Section 4.4 Stock Option Plans.
A. Options Granted to Company Employees and Independent Directors. If at
any time or from time to time, in connection with the Previous General Partner's
Stock Option Plans, a stock option granted to a Company Employee or Independent
Director is duly exercised:
(1) The Special Limited Partner shall, as soon as practicable after
such exercise, make a Capital Contribution to the Partnership in an amount
equal to the exercise price paid to the Previous General Partner by such
exercising party in connection with the exercise of such stock option.
(2) Notwithstanding the amount of the Capital Contribution actually
made pursuant to Section 4.4.A(1) hereof, the Special Limited Partner shall
be deemed to have contributed to the Partnership as a Capital Contribution,
in consideration of an additional Limited Partner Interest (expressed in
and as additional Partnership Common Units), an amount equal to the Value
of a REIT Share as of the date of exercise multiplied by the number of REIT
Shares then being issued in connection with the exercise of such stock
option.
(3) An equitable Percentage Interest adjustment shall be made in which
the Special Limited Partner shall be treated as having made a cash
contribution equal to the amount described in Section 4.4.A(2) hereof.
B. Options Granted to Partnership Employees. If at any time or from time to
time, in connection with the Previous General Partner's Stock Option Plans, a
stock option granted to a Partnership Employee is duly exercised:
(1) The General Partner shall cause the Previous General Partner to
sell to the Partnership, and the Partnership shall purchase from the
Previous General Partner, the number of REIT Shares as to which such stock
option is being exercised. The purchase price per REIT Share for such sale
of REIT Shares to the Partnership shall be the Value of a REIT Share as of
the date of exercise of such stock option.
(2) The Partnership shall sell to the Optionee (or if the Optionee is
an employee of a Partnership Subsidiary, the Partnership shall sell to such
Partnership Subsidiary, which in turn shall sell to the Optionee), for a
cash price per share equal to the Value of a REIT Share at the time of the
exercise, the number of REIT Shares equal to (a) the exercise price paid to
the Previous General Partner by the exercising party in connection with the
exercise of such stock option divided by (b) the Value of a REIT Share at
the time of such exercise.
(3) The Partnership shall transfer to the Optionee (or if the Optionee
is an employee of a Partnership Subsidiary, the Partnership shall transfer
to such Partnership Subsidiary, which in turn shall transfer to the
Optionee) at no additional cost, as additional compensation, the number of
REIT Shares equal to the number of REIT Shares described in Section
4.4.B(1) hereof less the number of REIT Shares described in Section
4.4.B(2) hereof.
(4) The Special Limited Partner shall, as soon as practicable after
such exercise, make a Capital Contribution to the Partnership of an amount
equal to all proceeds received (from whatever source, but excluding any
payment in respect of payroll taxes or other withholdings) by the Previous
General Partner, the General Partner or the Special Limited Partner in
connection with the exercise of such stock option. An equitable Percentage
Interest adjustment shall be made in which the Special Limited Partner
shall be treated as having made a cash contribution equal to the amount
described in Section 4.4.B(1) hereof.
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C. Special Valuation Rule. For purposes of this Section 4.4, in determining
the Value of a REIT Share, only the trading date immediately preceding the
exercise of the relevant stock option under the Previous General Partner's Stock
Option Plans shall be considered.
D. Future Stock Incentive Plans. Nothing in this Agreement shall be
construed or applied to preclude or restrain the Previous General Partner, the
General Partner or the Special Limited Partner from adopting, modifying or
terminating stock incentive plans, in addition to the Previous General Partner's
Stock Option Plans, for the benefit of employees, directors or other business
associates of the Previous General Partner, the General Partner, the Special
Limited Partner, the Partnership any of their Affiliates. The Limited Partners
acknowledge and agree that, in the event that any such plan is adopted, modified
or terminated by the Previous General Partner, the General Partner or the
Special Limited Partner amendments to this Section 4.4 may become necessary or
advisable and that any approval or consent to any such amendments requested by
the Previous General Partner, the General Partner or the Special Limited Partner
shall not be unreasonably withheld or delayed.
Section 4.5 No Interest; No Return. No Partner shall be entitled to
interest on its Capital Contribution or on such Partner's Capital Account.
Except as provided herein or by law, no Partner shall have any right to demand
or receive the return of its Capital Contribution from the Partnership.
Section 4.6 Conversion of Junior Shares. If, at any time, any of the
Junior Shares are converted into REIT Shares, in whole or in part, then a number
of Partnership Common Units equal to (i) the number of REIT Shares issued upon
such conversion divided by (ii) the Adjustment Factor then in effect shall be
issued to the General Partner and the Special Limited Partner (and between the
General Partner and the Special Limited Partner in proportion to their ownership
of Partnership Common Unit immediately preceding such conversion), and the
Percentage Interests of the General Partner and the Limited Partners (including
the Special Limited Partner) shall be adjusted to reflect such conversion.
ARTICLE 5
DISTRIBUTIONS
Section 5.1 Requirement and Characterization of Distributions. Subject to
the terms of any Partnership Unit Designation, the General Partner shall cause
the Partnership to distribute quarterly all, or such portion as the General
Partner may in its sole and absolute discretion determine, of Available Cash
generated by the Partnership during such quarter to the Holders of Partnership
Common Units in accordance with their respective Partnership Common Units held
on such Partnership Record Date. Except as otherwise provided in the terms of
any Partnership Unit Designation, distributions payable with respect to any
Partnership Units (other than Partnership Units held by the General Partner or
the Special Limited Partner) that were not outstanding during the entire
quarterly period in respect of which any distribution is made shall be prorated
based on the portion of the period that such units were outstanding. The General
Partner in its sole and absolute discretion may distribute to the Unitholders
Available Cash on a more frequent basis and provide for an appropriate record
date. The General Partner shall take such reasonable efforts, as determined by
it in its sole and absolute discretion and consistent with the Previous General
Partner's qualification as a REIT, to cause the Partnership to distribute
sufficient amounts to enable (i) the General Partner and the Special Limited
Partner to transfer funds to the Previous General Partner and (ii) the Previous
General Partner to pay shareholder dividends that will (a) satisfy the
requirements for qualifying as a REIT under the Code and Regulations (the "REIT
Requirements") and (b) avoid any federal income or excise tax liability of the
Previous General Partner.
Section 5.2 Distributions in Kind. No right is given to any Unitholder to
demand and receive property other than cash as provided in this Agreement. The
General Partner may determine, in its sole and absolute discretion, to make a
distribution in kind of Partnership assets to the Unitholders, and such assets
shall be distributed in such a fashion as to ensure that the fair market value
is distributed and allocated in accordance with Articles 5, 6 and 10 hereof.
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Section 5.3 Amounts Withheld. All amounts withheld pursuant to the Code or
any provisions of any state or local tax law and Section 10.4 hereof with
respect to any allocation, payment or distribution to any Unitholder shall be
treated as amounts paid or distributed to such Unitholder pursuant to Section
5.1 hereof for all purposes under this Agreement.
Section 5.4 Distributions Upon Liquidation. Notwithstanding the other
provisions of this Article 5, net proceeds from a Terminating Capital
Transaction, and any other cash received or reductions in reserves made after
commencement of the liquidation of the Partnership, shall be distributed to the
Unitholders in accordance with Section 13.2 hereof.
Section 5.5 Restricted Distributions. Notwithstanding any provision to the
contrary contained in this Agreement, neither the Partnership nor the General
Partner, on behalf of the Partnership, shall make a distribution to any
Unitholder on account of its Partnership Interest or interest in Partnership
Units if such distribution would violate Section 17-607 of the Act or other
applicable law.
ARTICLE 6
ALLOCATIONS
Section 6.1 Timing and Amount of Allocations of Net Income and Net
Loss. Net Income and Net Loss of the Partnership shall be determined and
allocated with respect to each Fiscal Year of the Partnership as of the end of
each such year. Except as otherwise provided in this Article 6, and subject to
Section 11.6.C hereof, an allocation to a Unitholder of a share of Net Income or
Net Loss shall be treated as an allocation of the same share of each item of
income, gain, loss or deduction that taken into account in computing Net Income
or Net Loss.
Section 6.2 General Allocations. Subject to the terms of any Partnership
Unit Designation, except as otherwise provided in this Article 6 and subject to
Section 11.6.C hereof, Net Income and Net Loss shall be allocated to each of the
Holders of Partnership Common Units in accordance with their respective
Partnership Common Units at the end of each Fiscal Year.
Section 6.3 Additional Allocation Provisions. Notwithstanding the
foregoing provisions of this Article 6:
A. Intentionally Omitted.
B. Regulatory Allocations.
(i) Minimum Gain Chargeback. Except as otherwise provided in
Regulations Section 1.704-2(f), notwithstanding the provisions of Section
6.2 hereof, or any other provision of this Article 6, if there is a net
decrease in Partnership Minimum Gain during any Fiscal Year, each Holder of
Partnership Common Units shall be specially allocated items of Partnership
income and gain for such year (and, if necessary, subsequent years) in an
amount equal to such Holder's share of the net decrease in Partnership
Minimum Gain, as determined under Regulations Section 1.704-2(g).
Allocations pursuant to the previous sentence shall be made in proportion
to the respective amounts required to be allocated to each Holder pursuant
thereto. The items to be allocated shall be determined in accordance with
Regulations Sections 1.704-2(f)(6) and 1.704-2(j)(2). This Section 6.3.B(i)
is intended to qualify as a "minimum gain chargeback" within the meaning of
Regulations Section 1.704-2(f) and shall be interpreted consistently
therewith.
(ii) Partner Minimum Gain Chargeback. Except as otherwise provided in
Regulations Section 1.704-2(i)(4) or in Section 6.3.B(i) hereof, if there
is a net decrease in Partner Minimum Gain attributable to a Partner
Nonrecourse Debt during any Fiscal Year, each Holder of Partnership Common
Units who has a share of the Partner Minimum Gain attributable to such
Partner Nonrecourse Debt, determined in accordance with Regulations Section
1.704-2(i)(5), shall be specially allocated items Partnership income and
gain for such year (and, if necessary, subsequent years) in an amount equal
to such Holder's share of the net decrease in Partner Minimum Gain
attributable to such Partner
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Nonrecourse Debt, determined in accordance with Regulations Section
1.704-2(i)(4). Allocations pursuant to the previous sentence shall be made
in proportion to the respective amounts required to be allocated to each
General Partner, Limited Partner and other Holder pursuant thereto. The
items to be so allocated shall be determined in accordance with Regulations
Sections 1.704-2(i)(4) and 1.704-2(j)(2). This Section 6.3.B(ii) is
intended to qualify as a "chargeback of partner nonrecourse debt minimum
gain" within the meaning of Regulations Section 1.704-2(i) and shall be
interpreted consistently therewith.
(iii) Nonrecourse Deductions and Partner Nonrecourse Deductions. Any
Nonrecourse Deductions for any Fiscal Year shall be specially allocated to
the Holders of Partnership Common Units in accordance with their
Partnership Common Units. Any Partner Nonrecourse Deductions for any Fiscal
Year shall be specially allocated to the Holder(s) who bears the economic
risk of loss with respect to the Partner Nonrecourse Debt to which such
Partner Nonrecourse Deductions are attributable, in accordance with
Regulations Section 1.704-2(i).
(iv) Qualified Income Offset. If any Holder of Partnership Common
Units unexpectedly receives an adjustment, allocation or distribution
described in Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5) or (6), items
of Partnership income and gain shall be allocated, in accordance with
Regulations Section 1.704-1(b)(2)(ii)(d), to such Holder in an amount and
manner sufficient to eliminate, to the extent required by such Regulations,
the Adjusted Capital Account Deficit of such Holder as quickly as possible,
provided that an allocation pursuant to this Section 6.3.B(iv) shall be
made if and only to the extent that such Holder would have an Adjusted
Capital Account Deficit after all other allocations provided in this
Article 6 have been tentatively made as if this Section 6.3.B(iv) were not
in the Agreement. It is intended that this Section 6.3.B(iv) qualify and be
construed as a "qualified income offset" within the meaning of Regulations
Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently
therewith.
(v) Gross Income Allocation. In the event that any Holder of
Partnership Common Units has a deficit Capital Account at the end of any
Fiscal Year that is in excess of the sum of (1) the amount (if any) that
such Holder is obligated to restore to the Partnership upon complete
liquidation of such Holder's Partnership Interest (including, the Holder's
interest in outstanding Partnership Preferred Units and other Partnership
Units) and (2) the amount that such Holder is deemed to be obligated to
restore pursuant to the penultimate sentences of Regulations Sections
1.704-2(g)(1) and 1.704-2(i)(5), each such Holder shall be specially
allocated items of Partnership income and gain in the amount of such excess
to eliminate such deficit as quickly as possible, provided that an
allocation pursuant to this Section 6.3.B(v) shall be made if and only to
the extent that such Holder would have a deficit Capital Account in excess
of such sum after all other allocations provided in this Article 6 have
been tentatively made as if this Section 6.3.B(v) and Section 6.3.B(iv)
hereof were not in the Agreement.
(vi) Limitation on Allocation of Net Loss. To the extent that any
allocation of Net Loss would cause or increase an Adjusted Capital Account
Deficit as to any Holder of Partnership Common Units, such allocation of
Net Loss shall be reallocated among the other Holders of Partnership Common
Units in accordance with their respective Partnership Common Units, subject
to the limitations of this Section 6.3.B(vi).
(vii) Section 754 Adjustment. To the extent that an adjustment to the
adjusted tax basis of any Partnership asset pursuant to Code Section 734(b)
or Code Section 743(b) is required, pursuant to Regulations Section
1.704-1(b)(2)(iv)(m)(2) or Regulations Section 1.704-1(b)(2)(iv)(m)(4), to
be taken into account in determining Capital Accounts as the result of a
distribution to a Holder of Partnership Common Units in complete
liquidation of its interest in the Partnership, the amount of such
adjustment to the Capital Accounts shall be treated as an item of gain (if
the adjustment increases the basis of the asset) or loss (if the adjustment
decreases such basis), and such gain or loss shall be specially allocated
to the Holders in accordance with their Partnership Common Units in the
event that Regulations Section 1.704-1(b)(2)(iv)(m)(2) applies, or to the
Holders to whom such distribution was made in the event that Regulations
Section 1.704-1(b)(2)(iv)(m)(4) applies.
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(viii) Curative Allocations. The allocations set forth in Sections
6.3.B(i), (ii), (iii), (iv), (v), (vi) and (vii) hereof (the "Regulatory
Allocations") are intended to comply with certain regulatory requirements,
including the requirements of Regulations Sections 1.704-1(b) and 1.704-2.
Notwithstanding the provisions of Section 6.1 hereof, the Regulatory
Allocations shall be taken into account in allocating other items of
income, gain, loss and deduction among the Holders of Partnership Common
Units so that to the extent possible without violating the requirements
giving rise to the Regulatory Allocations, the net amount of such
allocations of other items and the Regulatory Allocations to each Holder of
a Partnership Common Unit shall be equal to the net amount that would have
been allocated to each such Holder if the Regulatory Allocations had not
occurred.
C. Special Allocations Upon Liquidation. Notwithstanding any provision in
this Article VI to the contrary, in the event that the Partnership disposes of
all or substantially all of its assets in a transaction that will lead to a
liquidation of the Partnership pursuant to Article XIII hereof, then any Net
Income or Net Loss realized in connection with such transaction and thereafter
(and, if necessary, constituent items of income, gain, loss and deduction) shall
be specially allocated the Partners as required so as to cause liquidating
distributions pursuant to Section 13.2.A(4) hereof to be made in the same
amounts and proportions as would have resulted had such distributions instead
been made pursuant to Section 5.1 hereof.
D. Allocation of Excess Nonrecourse Liabilities. For purposes of
determining a Holder's proportional share of the "excess nonrecourse
liabilities" of the Partnership within the meaning of Regulations Section
1.752-3(a)(3), each Holder's interest in Partnership profits shall be such
Holder's share of Partnership Common Units.
Section 6.4 Tax Allocations.
A. In General. Except as otherwise provided in this Section 6.4, for income
tax purposes under the Code and the Regulations each Partnership item of income,
gain, loss and deduction (collectively, "Tax Items") shall be allocated among
the Holders of Partnership Common Units in the same manner as its correlative
item of "book" income, gain, loss or deduction is allocated pursuant to Sections
6.2 and 6.3 hereof.
B. Allocations Respecting Section 704(c) Revaluations. Notwithstanding
Section 6.4.A hereof, Tax Items with respect to Property that is contributed to
the Partnership with a Gross Asset Value that varies from its basis in the hands
of the contributing Partner immediately preceding the date of contribution shall
be allocated among the Holders of Partnership Common Units for income tax
purposes pursuant to Regulations promulgated under Code Section 704(c) so as to
take into account such variation. The Partnership shall account for such
variation under any method approved under Code Section 704(c) and the applicable
Regulations as chosen by the General Partner, including, without limitation, the
"traditional method" as described in Regulations Section 1.704-3(b). In the
event that the Gross Asset Value of any partnership asset is adjusted pursuant
to subsection (b) of the definition of "Gross Asset Value" (provided in Article
1 hereof), subsequent allocations of Tax Items with respect to such asset shall
take account of the variation, if any, between the adjusted basis of such asset
and its Gross Asset Value in the same manner as under Code Section 704(c) and
the applicable Regulations.
ARTICLE 7
MANAGEMENT AND OPERATIONS OF BUSINESS
Section 7.1 Management.
A. Except as otherwise expressly provided in this Agreement, all management
powers over the business and affairs of the Partnership are and shall be
exclusively vested in the General Partner, and no Limited Partner shall have any
right to participate in or exercise control or management power over the
business and affairs of the Partnership. The General Partner may not be removed
by the Partners with or without cause, except with the Consent of the General
Partner. In addition to the now or hereafter granted a general partner of a
limited partnership under applicable law or that are granted to the General
Partner under any other
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provision of this Agreement, the General Partner, subject to the other
provisions hereof including Section 7.3, shall have full power and authority to
do all things deemed necessary or desirable by it to conduct the business of the
Partnership, to exercise all powers set forth in Section 3.2 hereof and to
effectuate the purposes set forth in Section 3.1 hereof, including, without
limitation:
(1) the making of any expenditures, the lending or borrowing of money
(including, without limitation, making prepayments on loans and borrowing
money to permit the Partnership to make distributions to its Partners in
such amounts as will permit the Previous General Partner (so long as the
Previous General Partner qualifies as a REIT) to avoid the payment of any
federal income tax (including, for this purpose, any excise tax pursuant to
Code Section 4981) and to make distribution its shareholders sufficient to
permit the Previous General Partner to maintain REIT status or otherwise to
satisfy the REIT Requirements), the assumption or guarantee of, or other
contracting for, indebtedness and other liabilities, the issuance of
evidences of indebtedness (including the securing of same by deed to secure
debt, mortgage, deed of trust or other lien or encumbrance on the
Partnership's assets) and the incurring of any obligations that it deems
necessary for the conduct of the activities of the Partnership;
(2) the making of tax, regulatory and other filings, or rendering of
periodic or other reports to governmental or other agencies having
jurisdiction over the business or assets of the Partnership;
(3) the acquisition, sale, transfer, exchange or other disposition of
any assets of the Partnership (including, but not limited to, the exercise
or grant of any conversion, option, privilege or subscription right or any
other right available in connection with any assets at any time held by the
Partnership) or the merger, consolidation, reorganization or other
combination of the Partnership with or into another entity;
(4) the mortgage, pledge, encumbrance or hypothecation of any assets
of the Partnership, the use of the assets of the Partnership (including,
without limitation, cash on hand) for any purpose consistent with the terms
of this Agreement and on any terms that it sees fit, including, without
limitation, the financing of the operations and activities of the General
Partner, the Partnership or any of the Partnership's Subsidiaries, the
lending of funds to other Persons (including, without limitation, the
Partnership's Subsidiaries) and the repayment of obligations of the
Partnership, its Subsidiaries and any other Person in which it has an
equity investment, and the making of capital contributions to and equity
investments in the Partnership's Subsidiaries;
(5) the management, operation, leasing, landscaping, repair,
alteration, demolition, replacement or improvement of any Property,
including, without limitation, any Contributed Property, or other asset of
the Partnership or any Subsidiary;
(6) the negotiation, execution and performance of any contracts,
leases, conveyances or other instruments that the General Partner considers
useful or necessary to the conduct of the Partnership's operations or the
implementation of the General Partner's powers under this Agreement,
including contracting with contractors, developers, consultants,
accountants, legal counsel, other professional advisors and other agents
and the payment of their expenses and compensation out of the Partnership's
assets;
(7) the distribution of Partnership cash or other Partnership assets
in accordance with this Agreement, the holding, management, investment and
reinvestment of cash and other assets of the Partnership, and the
collection and receipt of revenues, rents and income of the Partnership;
(8) the selection and dismissal of employees of the Partnership or the
General Partner (including, without limitation, employees having titles or
offices such as "president," "vice president," "secretary" and
"treasurer"), and agents, outside attorneys, accountants, consultants and
contractors of the Partnership or the General Partner and the determination
of their compensation and other terms of employment or hiring;
(9) the maintenance of such insurance for the benefit of the
Partnership and the Partners as it deems necessary or appropriate;
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(10) the formation of, or acquisition of an interest in, and the
contribution of property to, any further limited or general partnerships,
limited liability companies, joint ventures or other relationships that it
deems desirable (including, without limitation, the acquisition of
interests in, and the contributions of property to, any Subsidiary and any
other Person in which it has an equity investment from time to time);
provided, however, that, as long as the Previous General Partner has
determined to continue to qualify as a REIT, the General Partner may not
engage in any such formation, acquisition or contribution that would cause
the Previous General Partner to fail to qualify as a REIT or the General
Partner to fail to qualify as a "qualified REIT subsidiary" within the
meaning of Code Section 856(i)(2);
(11) the control of any matters affecting the rights and obligations
of the Partnership, including the settlement, compromise, submission to
arbitration or any other form of dispute resolution, or abandonment, of any
claim, cause of action, liability, debt or damages, due or owing to or from
the Partnership, the commencement or defense of suits, legal proceedings,
administrative proceedings, arbitrations or other forms of dispute
resolution, and the representation of the Partnership in all suits or legal
proceedings, administrative proceedings, arbitrations or other forms of
dispute resolution, the incurring of legal expense, and the indemnification
of any Person against liabilities and contingencies to the extent permitted
by law;
(12) the undertaking of any action in connection with the
Partnership's direct or indirect investment in any Subsidiary or any other
Person (including, without limitation, the contribution or loan of funds by
the Partnership to such Persons);
(13) the determination of the fair market value of any Partnership
property distributed in kind using such reasonable method of valuation as
it may adopt; provided that such methods are otherwise consistent with the
requirements of this Agreement;
(14) the enforcement of any rights against any Partner pursuant to
representations, warranties, covenants and indemnities relating to such
Partner's contribution of property or assets to the Partnership;
(15) the exercise, directly or indirectly, through any
attorney-in-fact acting under a general or limited power of attorney, of
any right, including the right to vote, appurtenant to any asset or
investment held by the Partnership;
(16) the exercise of any of the powers of the General Partner
enumerated in this Agreement on behalf of or in connection with any
Subsidiary of the Partnership or any other Person in which the Partnership
has a direct or indirect interest, or jointly with any such Subsidiary or
other Person;
(17) the exercise of any of the powers of the General Partner
enumerated in this Agreement on behalf of any Person in which the
Partnership does not have an interest, pursuant to contractual or other
arrangements with such Person;
(18) the making, execution and delivery of any and all deeds, leases,
notes, deeds to secure debt, mortgages, deeds of trust, security
agreements, conveyances, contracts, guarantees, warranties, indemnities,
waivers, releases or legal instruments or agreements in writing necessary
or appropriate in the judgment of the General Partner for the
accomplishment of any of the powers of the General Partner enumerated in
this Agreement;
(19) the issuance of additional Partnership Units, as appropriate and
in the General Partner's sole and absolute discretion, in connection with
Capital Contributions by Additional Limited Partners and additional Capital
Contributions by Partners pursuant to Article 4 hereof; and
(20) an election to dissolve the Partnership pursuant to Section
13.1.C hereof.
B. Each of the Limited Partners agrees that, except as provided in Section
7.3 hereof, the General Partner is authorized to execute, deliver and perform
the above-mentioned agreements and transactions on behalf of the Partnership
without any further act, approval or vote of the Partners, notwithstanding any
other provision of this Agreement (except as provided in Section 7.3 hereof),
the Act or any applicable law, rule or regulation. The execution, delivery or
performance by the General Partner or the Partnership of any
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agreement authorized or permitted under this Agreement shall not constitute a
breach by the General Partner of any duty that the General Partner may owe the
Partnership or the Limited Partners or any other Persons under this Agreement or
of any duty stated or implied by law or equity.
C. At all times from and after the date hereof, the General Partner may
cause the Partnership to obtain and maintain (i) casualty, liability and other
insurance on the Properties of the Partnership and (ii) liability insurance for
the Indemnitees hereunder.
D. At all times from and after the date hereof, the General Partner may
cause the Partnership to establish and maintain working capital and other
reserves in such amounts as the General Partner, in its sole and absolute
discretion, deems appropriate and reasonable from time to time.
E. In exercising its authority under this Agreement, the General Partner
may, but shall be under no obligation to, take into account the tax consequences
to any Partner (including the General Partner) of any action taken by it. The
General Partner and the Partnership shall not have liability to a Limited
Partner under any circumstances as a result of an income tax liability incurred
by such Limited Partner as a result of an action (or inaction) by the General
Partner pursuant to its authority under this Agreement so long as the action or
inaction is taken in good faith.
Section 7.2 Certificate of Limited Partnership. To the extent that such
action is determined by the General Partner to be reasonable and necessary or
appropriate, the General Partner shall file amendments to and restatements of
the Certificate and do all the things to maintain the Partnership as a limited
partnership (or a partnership in which the limited partners have limited
liability) under the laws of the State of Delaware and each other state, the
District of Columbia or any other jurisdiction, in which the Partnership may
elect to do business or own property. Subject to the terms of Section 8.5.A(4)
hereof, the General Partner shall not be required, before or after filing, to
deliver or mail a copy of the Certificate or any amendment thereto to any
Limited Partner. The General Partner shall use all reasonable efforts to cause
to be filed such other certificates or documents as may be reasonable and
necessary or appropriate for the formation, continuation, qualification and
operation of a limited partnership (or a partnership in which the limited
partners have limited liability to the extent provided by applicable law) in the
State of Delaware and any other state, or the District of Columbia or other
jurisdiction, in which the Partnership may elect to do business or own property.
Section 7.3 Restrictions on General Partner's Authority.
A. The General Partner may not take any action in contravention of this
Agreement, including, without limitation:
(1) take any action that would make it impossible to carry on the
ordinary business of the Partnership, except as otherwise provided in this
Agreement;
(2) possess Partnership property, or assign any rights in specific
Partnership property, for other than a Partnership purpose except as
otherwise provided in this Agreement;
(3) admit a Person as a Partner, except as otherwise provided in this
Agreement;
(4) perform any act that would subject a Limited Partner to liability
as a general partner in any jurisdiction or any other liability except as
provided herein or under the Act; or
(5) enter into any contract, mortgage, loan or other agreement that
prohibits or restricts, or has the effect of prohibiting or restricting,
the ability of (a) the General Partner, the Previous General Partner or the
Partnership from satisfying its obligations under Section 8.6 hereof in
full or (b) a Limited Partner from exercising its rights under Section 8.6
hereof to effect a Redemption in full, except, in either case, with the
written consent of such Limited Partner affected the prohibition or
restriction.
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B. The General Partner shall not, without the prior Consent of the Limited
Partners, undertake, on behalf of the Partnership, any of the following actions
or enter into any transaction that would have the effect of such transactions:
(1) except as provided in Section 7.3.C hereof, amend, modify or
terminate this Agreement other than to reflect the admission, substitution,
termination or withdrawal of Partners pursuant to Article 11 or Article 12
hereof;
(2) make a general assignment for the benefit of creditors or appoint
or acquiesce in the appointment of a custodian, receiver or trustee for all
or any part of the assets of the Partnership;
(3) institute any proceeding for bankruptcy on behalf of the
Partnership; or
(4) subject to the rights of Transfer provided in Sections 11.1.C and
11.2 hereof, approve or acquiesce to the Transfer of the Partnership
Interest of the General Partner, or admit into the Partnership any
additional or successor General Partners.
C. Notwithstanding Section 7.3.B hereof, the General Partner shall have the
power, without the Consent of the Limited Partners, to amend this Agreement as
may be required to facilitate or implement any of the following purposes:
(1) to add to the obligations of the General Partner or surrender any
right or power granted to the General Partner or any Affiliate of the
General Partner for the benefit of the Limited Partners;
(2) to reflect the admission, substitution or withdrawal of Partners
or the termination of the Partnership in accordance with this Agreement,
and to amend Exhibits A and C in connection with such admission,
substitution or withdrawal;
(3) to reflect a change that is of an inconsequential nature and does
not adversely affect the Limited Partners in any material respect, or to
cure any ambiguity, correct or supplement any provision in this Agreement
not inconsistent with law or with other provisions, or make other changes
with respect to matters arising under this Agreement that will not be
inconsistent with law or with the provisions of this Agreement;
(4) to satisfy any requirements, conditions or guidelines contained in
any order, directive, opinion, ruling or regulation of a federal or state
agency or contained in federal or state law;
(5) (a) to reflect such changes as are reasonably necessary (i) for
either the General Partner or the Special Limited Partner, as the case may
be, to maintain its status as a "qualified REIT subsidiary" within the
meaning of Code Section 856(i)(2) or (ii) for the Previous General Partner
to maintain its status as a REIT or to satisfy the REIT Requirement; (b) to
reflect the Transfer of all or any part of a Partnership Interest among the
Previous General Partner, the General Partner, the Special Limited Partner
or any other "qualified REIT subsidiary" (within the meaning of Code
Section 856(i)(2)) with respect to the Previous General Partner;
(6) to modify the manner in which Capital Accounts are computed (but
only to the extent set forth in the definition of "Capital Account" or
contemplated by the Code or the Regulations); and
(7) the issuance of additional Partnership Interests in accordance
with Section 4.2.
The General Partner will provide notice to the Limited Partners when any action
under this Section 7.3.C is taken.
D. Notwithstanding Sections 7.3.B and 7.3.C hereof, this Agreement shall
not be amended, and no action may be taken by the General Partner, without the
Consent of each Partner adversely affected, if such amendment or action would
(i) convert a Limited Partner Interest in the Partnership into a General Partner
Interest (except as a result of the General Partner acquiring such Partnership
Interest), (ii) modify the limited liability of a Limited Partner, (iii) alter
the rights of any Partner to receive the distributions to which such Partner is
entitled, pursuant to Article 5 or Section 13.2.A(4) hereof, or alter the
allocations specified in
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Article 6 hereof (except, in any case, as permitted pursuant to Sections 4.2 and
7.3.C hereof), (iv) alter or modify the Redemption rights, Cash Amount or REIT
Shares Amount as set forth in Sections 8.6 and 11.2 hereof, or amend or modify
any related definitions, or (v) amend this Section 7.3.D; provided, however,
that the Consent of each Partner adversely affected shall not be required for
any amendment or action that affects all Partners holding the same class or
series of Partnership Units on a uniform or pro rata basis. Further, no
amendment may alter the restrictions on the General Partner's authority set
forth elsewhere in this Section 7.3 without the Consent specified therein. Any
such amendment or action consented to by any Partner shall be effective as to
that Partner, notwithstanding the absence of such consent by any other Partner.
Section 7.4 Reimbursement of the General Partner.
A. The General Partner shall not be compensated for its services as general
partner of the Partnership except as provided in elsewhere in this Agreement
(including the provisions of Articles 5 and 6 hereof regarding distributions,
payments and allocations to which it may be entitled in its capacity as the
General Partner).
B. Subject to Sections 7.4.C and 15.11 hereof, the Partnership shall be
liable for, and shall reimburse the General Partner on a monthly basis, or such
other basis as the General Partner may determine in its sole and absolute
discretion, for all sums expended in connection with the Partnership's business,
including, without limitation, (i) expenses relating to the ownership of
interests in and management and operation of, or for the benefit of, the
Partnership, (ii) compensation of officers and employees, including, without
limitation, payments under future compensation plans of the General Partner that
may provide for stock units, or other phantom stock, pursuant to which employees
of the General Partner will receive payments based upon dividends on or the
value of REIT Shares, (iii) director fees and expenses and (iv) all costs and
expenses of the General Partner being a public company, including costs of
filings with the SEC, reports and other distributions to its shareholders;
provided, however, that the amount of any reimbursement shall be reduced by any
interest earned by the General Partner with respect to bank accounts or other
instruments or accounts held by it on behalf of the Partnership as permitted
pursuant to Section 7.5 hereof. Such reimbursements shall be in addition to any
reimbursement of the General Partner as a result of indemnification pursuant to
Section 7.7 hereof.
C. To the extent practicable, Partnership expenses shall be billed directly
to and paid by the Partnership and, subject to Section 15.11 hereof,
reimbursements to the General Partner or any of its Affiliates by the
Partnership pursuant to this Section 7.4 shall be treated as "guaranteed
payments" within the meaning of Code Section 707(c).
Section 7.5 Outside Activities of the Previous General Partner and the
General Partner. Neither the General Partner nor the Previous General Partner
shall directly or indirectly enter into or conduct any business, other than in
connection with (a) the ownership, acquisition and disposition of Partnership
Interests as General Partner, (b) the management of the business of the
Partnership, (c) the operation of the Previous General Partner as a reporting
company with a class (or classes) of securities registered under the Exchange
Act, (d) the Previous General Partner's operations as a REIT, (e) the offering,
sale, syndication, private placement or public offering of stock, bonds,
securities or other interests, (f) financing or refinancing of any type related
to the Partnership or its assets or activities, (g) the General Partner's
qualification as a "qualified REIT subsidiary" (within the meaning of Code
Section 856(i)(2)) and (h) such activities as are incidental thereto. Nothing
contained herein shall be deemed to prohibit the General Partner or the Previous
General Partner from executing guarantees of Partnership debt for which it would
otherwise be liable in its capacity as General Partner. Subject to Section 7.3.B
hereof, the General Partner, the Previous General Partner, the Special Limited
Partner and all "qualified REIT subsidiaries" (within the meaning of Code
Section 856(i)(2)), taken as a group, shall not own any assets or take title to
assets (other than temporarily in connection with an acquisition prior to
contributing such assets to the Partnership) other than Partnership Interests as
the General Partner or Special Limited Partner and other than such cash and cash
equivalents, bank accounts or similar instruments or accounts as such group
deems reasonably necessary, taking into account Section 7.1.D hereof and the
requirements necessary for the Previous General Partner to qualify as a REIT and
for the Previous General Partner, the General Partner and the Special Limited
Partner to carry out
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their respective responsibilities contemplated under this Agreement and the
Charter. Notwithstanding the foregoing, if the Previous General Partner or the
General Partner acquires assets in its own name and owns Property other than
through the Partnership, the Partners agree to negotiate in good faith to amend
this Agreement, including, without limitation, the definition of "Adjustment
Factor," to reflect such activities and the direct ownership of assets by the
Previous General Partner or the General Partner. The General Partner and any
Affiliates of the General Partner may acquire Limited Partner Interests and
shall be entitled to exercise all rights of a Limited Partner relating to such
Limited Partner Interests.
Section 7.6 Contracts with Affiliates.
A. The Partnership may lend or contribute funds or other assets to its
Subsidiaries or other Persons in which it has an equity investment, and such
Persons may borrow funds from the Partnership, on terms and conditions
established in the sole and absolute discretion of the General Partner. The
foregoing authority shall not create any right or benefit in favor of any
Subsidiary or any other Person.
B. Except as provided in Section 7.5 hereof and subject to Section 3.1
hereof, the Partnership may transfer assets to joint ventures, limited liability
companies, partnerships, corporations, business trusts or other business
entities in which it is or thereby becomes a participant upon such terms and
subject to such conditions consistent with this Agreement and applicable law as
the General Partner, in its sole and absolute discretion, believes to be
advisable.
C. Except as expressly permitted by this Agreement, neither the General
Partner nor any of its Affiliates shall sell, transfer or convey any property to
the Partnership, directly or indirectly, except pursuant to transactions that
are determined by the General Partner in good faith to be fair and reasonable.
D. The General Partner, in its sole and absolute discretion and without the
approval of the Limited Partners, may propose and adopt on behalf of the
Partnership employee benefit plans funded by the Partnership for the benefit of
employees of the General Partner, the Partnership, Subsidiaries of the
Partnership or any Affiliate of any of them in respect of services performed,
directly or indirectly, for the benefit of the Partnership or any of the
Partnership's Subsidiaries.
E. The General Partner is expressly authorized to enter into, in the name
and on behalf of the Partnership, a right of first opportunity arrangement and
other conflict avoidance agreements with various Affiliates of the Partnership
and the General Partner, on such terms as the General Partner, in its sole and
absolute discretion, believes are advisable.
Section 7.7 Indemnification.
A. To the fullest extent permitted by applicable law, the Partnership shall
indemnify each Indemnitee from and against any and all losses, claims, damages,
liabilities, joint or several, expenses (including, without limitation,
attorney's fees and other legal fees and expenses), judgments, fines,
settlements and other amounts arising from any and all claims, demands, actions,
suits or proceedings, civil, criminal, administrative or investigative, that
relate to the operations of the Partnership ("Actions") as set forth in this
Agreement in which such Indemnitee may be involved, or is threatened to be
involved, as a party or otherwise; provided, however, that the Partnership shall
not indemnify an Indemnitee (i) for willful misconduct or a knowing violation of
the law or (ii) for any transaction for which such Indemnitee received an
improper personal benefit in violation or breach of any provision of this
Agreement. Without limitation, the foregoing indemnity shall extend to any
liability of any Indemnitee, pursuant to a loan guaranty or otherwise, for any
indebtedness of the Partnership or any Subsidiary of the Partnership (including,
without limitation, any indebtedness which the Partnership or any Subsidiary of
the Partnership has assumed or taken subject to), and the General Partner is
hereby authorized and empowered, on behalf of the Partnership, to enter into one
or more indemnity agreements consistent with the provisions of this Section 7.7
in favor of any Indemnitee having or potentially having liability for any such
indebtedness. It is the intention of this Section 7.7.A that the Partnership
indemnify each Indemnitee to the fullest extent permitted by law. The
termination of any proceeding by judgment, order or settlement does not create a
presumption that the Indemnitee did not meet the requisite standard of conduct
set forth in this Section 7.7.A. The termination of any proceeding by conviction
of an Indemnitee or upon a plea of nolo contendere or its equivalent by an
Indemnitee, or an entry of an order of
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probation against an Indemnitee prior to judgment, does not create a presumption
that such Indemnitee acted in a manner contrary to that specified in this
Section 7.7.A with respect to the subject matter of such proceeding. Any
indemnification pursuant to this Section 7.7 shall be made only out of the
assets of the Partnership, and neither the General Partner nor any Limited
Partner shall have any obligation to contribute to the capital of the
Partnership or otherwise provide funds to enable the Partnership to fund its
obligations under this Section 7.7.
B. To the fullest extent permitted by law, expenses incurred by an
Indemnitee who is a party to a proceeding or otherwise subject to or the focus
of or is involved in any Action shall be paid or reimbursed by the Partnership
as incurred by the Indemnitee in advance of the final disposition of the Action
upon receipt by the Partnership of (i) a written affirmation by the Indemnitee
of the Indemnitee's good faith belief that the standard of conduct necessary for
indemnification by the Partnership as authorized in this Section 7.7.A has been
met, and (ii) a written undertaking by or on behalf of the Indemnitee to repay
the amount if it shall ultimately be determined that the standard of conduct has
not been met.
C. The indemnification provided by this Section 7.7 shall be in addition to
any other rights to which an Indemnitee or any other Person may be entitled
under any agreement, pursuant to any vote of the Partners, as a matter of law or
otherwise, and shall continue as to an Indemnitee who has ceased to serve in
such capacity and shall inure to the benefit of the heirs, successors, assigns
and administrators of the Indemnitee unless otherwise provided in a written
agreement with such Indemnitee or in the writing pursuant to which such
Indemnitee is indemnified.
D. The Partnership may, but shall not be obligated to, purchase and
maintain insurance, on behalf of any of the Indemnitees and such other Persons
as the General Partner shall determine, against any liability that may be
asserted against or expenses that may be incurred by such Person in connection
with the Partnership's activities, regardless of whether the Partnership would
have the power to indemnify such Person against such liability under the
provisions of this Agreement.
E. Any liabilities which an Indemnitee incurs as a result of acting on
behalf of the Partnership or the General Partner (whether as a fiduciary or
otherwise) in connection with the operation, administration or maintenance of an
employee benefit plan or any related trust or funding mechanism (whether such
liabilities are in the form of excise taxes assessed by the IRS, penalties
assessed by the Department of Labor, restitutions to such a plan or trust or
other funding mechanism or to a participant or beneficiary of such plan, trust
or other funding mechanism, or otherwise) shall be treated as liabilities or
judgments or fines under this Section 7.7, unless such liabilities arise as a
result of (i) such Indemnitee's intentional misconduct or knowing violation of
the law, or (ii) any transaction in which such Indemnitee received a personal
benefit in violation or breach of any provision of this Agreement or applicable
law.
F. In no event may an Indemnitee subject any of the Partners to personal
liability by reason of the indemnification provisions set forth in this
Agreement.
G. An Indemnitee shall not be denied indemnification in whole or in part
under this Section 7.7 because the Indemnitee had an interest in the transaction
with respect to which the indemnification applies if the transaction was
otherwise permitted by the terms of this Agreement.
H. The provisions of this Section 7.7 are for the benefit of the
Indemnitees, their heirs, successors, assigns and administrators and shall not
be deemed to create any rights for the benefit of any other Persons. Any
amendment, modification or repeal of this Section 7.7 or any provision hereof
shall be prospective only and shall not in any way affect the limitations on the
Partnership's liability to any Indemnitee under this Section 7.7 as in effect
immediately prior to such amendment modification or repeal with respect to
claims arising from or relating to matters occurring, in whole or in part, prior
to such amendment, modification or repeal, regardless of when such claims may
arise or be asserted.
I. It is the intent of the Partners that any amounts paid by the
Partnership to the General Partner pursuant to this Section 7.7 shall be treated
as "guaranteed payments" within the meaning of Code Section 707(c).
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Section 7.8 Liability of the General Partner.
A. Notwithstanding anything to the contrary set forth in this Agreement,
neither the General Partner nor any of its directors or officers shall be liable
or accountable in damages or otherwise to the Partnership, any Partners or any
Assignees for losses sustained, liabilities incurred or benefits not derived as
a result of errors in judgment or mistakes of fact or law or of any act or
omission if the General Partner or such director or officer acted in good faith.
B. The Limited Partners expressly acknowledge that the General Partner is
acting for the benefit of the Partnership, the Limited Partners and the General
Partner's shareholders collectively and that the General Partner is under no
obligation to give priority to the separate interests of the Limited Partners or
the General Partner's shareholders (including, without limitation, the tax
consequences to Limited Partners, Assignees or the General Partner's
shareholders) in deciding whether cause the Partnership to take (or decline to
take) any actions.
C. Subject to its obligations and duties as General Partner set forth in
Section 7.1.A hereof, the General Partner may exercise any of the powers granted
to it by this Agreement and perform any of the duties imposed upon it hereunder
either directly or by or through its employees or agents (subject to the
supervision and control of the General Partner). The General Partner shall not
be responsible for any misconduct or negligence on the part of any such agent
appointed by it in good faith.
D. Any amendment, modification or repeal of this Section 7.8 or any
provision hereof shall be prospective only and shall not in any way affect the
limitations on the General Partner's, and its officers' and directors',
liability to the Partnership and the Limited Partners under this Section 7.8 as
in effect immediately prior to such amendment, modification or repeal with
respect to claims arising from or relating to matters occurring, in whole or in
part, prior to such amendment, modification or repeal, regardless of when such
claims may arise or be asserted.
E. Notwithstanding anything herein to the contrary, except for fraud,
willful misconduct or gross negligence, or pursuant to any express indemnities
given to the Partnership by any Partner pursuant to any other written
instrument, no Partner shall have any personal liability whatsoever, to the
Partnership or to the other Partner(s), for the debts or liabilities of the
Partnership or the Partnership's obligations hereunder, and the full recourse of
the other Partner(s) shall be limited interest of that Partner in the
Partnership. To the fullest extent permitted by law, no officer, director or
shareholder of the General Partner shall be liable to the Partnership for money
damages except for (i) active and deliberate dishonesty established by a non-
appealable final judgment or (ii) actual receipt of an improper benefit or
profit in money, property or services. Without limitation of the foregoing, and
except for fraud, willful misconduct or gross negligence, or pursuant to any
such express indemnity, no property or assets of any Partner, other than its
interest in the Partnership, shall be subject to levy, execution or other
enforcement procedures for the satisfaction of any judgment (or other judicial
process) in favor of any other Partner(s) and arising out of, or in connection
with, this Agreement. This Agreement is executed by the officers of the General
Partner solely as officers of the same and not in their own individual
capacities.
F. To the extent that, at law or in equity, the General Partner has duties
(including fiduciary duties) and liabilities relating thereto to the Partnership
or the Limited Partners, the General Partner shall not be liable to the
Partnership or to any other Partner for its good faith reliance on the
provisions of this Agreement. The provisions of this Agreement, to the extent
that they restrict the duties and liabilities of the General Partner otherwise
existing at law or in equity, are agreed by the Partners to replace such other
duties and liabilities of such General Partner.
Section 7.9 Other Matters Concerning the General Partner.
A. The General Partner may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement, instrument,
opinion, report, notice, request, consent, order, bond, debenture or other paper
or document believed by it in good faith to be genuine and to have been signed
or presented by the proper party or parties.
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B. The General Partner may consult with legal counsel, accountants,
appraisers, management consultants, investment bankers, architects, engineers,
environmental consultants and other consultants and advisers selected by it, and
any act taken or omitted to be taken in reliance upon the opinion of such
Persons as to matters that the General Partner reasonably believes to be within
such Person's professional or expert competence shall be conclusively presumed
to have been done or omitted in good faith and in accordance with such opinion.
C. The General Partner shall have the right, in respect of any of its
powers or obligations hereunder, to act through any of its duly authorized
officers and a duly appointed attorney or attorneys-in-fact. Each such attorney
shall, to the extent provided by the General Partner in the power of attorney,
have full power and authority to do and perform all and every act and duty that
is permitted or required to be done by the General Partner hereunder.
D. Notwithstanding any other provision of this Agreement or the Act, any
action of the General Partner on behalf of the Partnership or any decision of
the General Partner to refrain from acting on behalf of the Partnership,
undertaken in the good faith belief that such action or omission is necessary or
advisable in order (i) to protect the ability of the Previous General Partner to
continue to qualify as a REIT, (ii) for the Previous General Partner otherwise
to satisfy the REIT Requirements, (iii) to avoid the Previous General Partner
incurring any taxes under Code Section 857 or Code Section 4981 or (iv) for the
General Partner or the Special Limited Partner to continue to qualify as a
"qualified REIT subsidiary" (within the meaning of Code Section 856(i)(2)), is
expressly authorized under this Agreement and is deemed approved by all of the
Limited Partners.
Section 7.10 Title to Partnership Assets. Title to Partnership assets,
whether real, personal or mixed and whether tangible or intangible, shall be
deemed to be owned by the Partnership as an entity, and no Partner, individually
or collectively with other Partners or Persons, shall have any ownership
interest in such Partnership assets or any portion thereof. Title to any or all
of the Partnership assets may be held in the name of the Partnership, the
General Partner or one or more nominees, as the General Partner may determine,
including Affiliates of the General Partner. The General Partner hereby declares
and warrants that any Partnership assets for which legal title is held in the
name of the General Partner or any nominee or Affiliate of the General Partner
shall be held by the General Partner for the use and benefit of the Partnership
in accordance with the provisions of this Agreement; provided, however, that the
General Partner shall use its best efforts to cause beneficial and record title
to such assets to be vested in the Partnership as soon as reasonably
practicable. All Partnership assets shall be recorded as the property of the
Partnership in its books and records, irrespective of the name in which legal
title to such Partnership assets is held.
Section 7.11 Reliance by Third Parties. Notwithstanding anything to the
contrary in this Agreement, any Person dealing with the Partnership shall be
entitled to assume that the General Partner has full power and authority,
without the consent or approval of any other Partner or Person, to encumber,
sell or otherwise use in any manner any and all assets of the Partnership and to
enter into any contracts on behalf of the Partnership, and take any and all
actions on behalf of the Partnership, and such Person shall be entitled to deal
with the General Partner as if it were the Partnership's sole party in interest,
both legally and beneficially. Each Limited Partner hereby waives any and all
defenses or other remedies that may be available against such Person to contest,
negate or disaffirm any action of the General Partner in connection with any
such dealing. In no event shall any Person dealing with the General Partner or
its representatives be obligated to ascertain that the terms of this Agreement
have been complied with or to inquire into the necessity or expediency of any
act or action of the General Partner or its representatives. Each and every
certificate, document or other instrument executed on behalf of the Partnership
by the General Partner or its representatives shall be conclusive evidence in
favor of any and every Person relying thereon or claiming thereunder that (i) at
the time of the execution and delivery of such certificate, document or
instrument, this Agreement was in full force and effect, (ii) the Person
executing and delivering such certificate, document or instrument was duly
authorized and empowered to do so for and on behalf of the Partnership and (iii)
such certificate, document or instrument was duly executed and delivered in
accordance with the terms and provisions of this Agreement and is binding upon
the Partnership.
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ARTICLE 8
RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS
Section 8.1 Limitation of Liability. The Limited Partners shall have no
liability under this Agreement except as expressly provided in this Agreement
(including, without limitation, Section 10.4 hereof) or under the Act.
Section 8.2 Management of Business. No Limited Partner or Assignee (other
than the General Partner, any of its Affiliates or any officer, director,
member, employee, partner, agent or trustee of the General Partner, the
Partnership or any of their Affiliates, in their capacity as such) shall take
part in the operations, management or control (within the meaning of the Act) of
the Partnership's business, transact any business in the Partnership's name or
have the power to sign documents for or otherwise bind the Partnership. The
transaction of any such business by the General Partner, any of its Affiliates
or any officer, director, member, employee, partner, agent, representative, or
trustee of the General Partner, the Partnership or any of their Affiliates, in
their capacity as such, shall not affect, impair or eliminate the limitations on
the liability of the Limited Partners or Assignees under this Agreement.
Section 8.3 Outside Activities of Limited Partners. Subject to any
agreements entered into pursuant to Section 7.6.D hereof and any other
agreements entered into by a Limited Partner or its Affiliates with the General
Partner, the Partnership or a Subsidiary (including, without limitation, any
employment agreement), any Limited Partner and any Assignee, officer, director,
employee, agent, trustee, Affiliate or shareholder of any Limited Partner shall
be entitled to and may have business interests and engage in business activities
in addition to those relating to the Partnership, including business interests
and activities that are in direct or indirect competition with the Partnership
or that are enhanced by the activities of the Partnership. Neither the
Partnership nor any Partners shall have any rights by virtue of this Agreement
in any business ventures of any Limited Partner or Assignee. Subject to such
agreements, none of the Limited Partners nor any other Person shall have any
rights by virtue of this Agreement or the partnership relationship established
hereby in any business ventures of any other Person (other than the General
Partner, to the extent expressly provided herein), and such Person shall have no
obligation pursuant to this Agreement, subject to Section 7.6.D hereof and any
other agreements entered into by a Limited Partner or its Affiliates with the
General Partner, the Partnership or a Subsidiary, to offer any interest in any
such business ventures to the Partnership, any Limited Partner or any such other
Person, even if such opportunity is of a character that, if presented to the
Partnership, any Limited Partner or such other Person, could be taken by such
Person.
Section 8.4 Return of Capital. Except pursuant to the rights of
Redemption set forth in Section 8.6 hereof, no Limited Partner shall be entitled
to the withdrawal or return of its Capital Contribution, except to the extent of
distributions made pursuant to this Agreement or upon termination of the
Partnership as provided herein. Except to the extent provided in Article 6
hereof or otherwise expressly provided in this Agreement, no Limited Partner or
Assignee shall have priority over any other Limited Partner or Assignee either
as to the return of Capital Contributions or as to profits, losses or
distributions.
Section 8.5 Rights of Limited Partners Relating to the Partnership.
A. In addition to other rights provided by this Agreement or by the Act,
and except as limited by Section 8.5.C hereof, each Limited Partner shall have
the right, for a purpose reasonably related to such Limited Partner's interest
as a limited partner in the Partnership, upon written demand with a statement of
the purpose of such demand and at such Limited Partner's own expense:
(1) to obtain a copy of (i) the most recent annual and quarterly
reports filed with the SEC by the Previous General Partner or the General
Partner pursuant to the Exchange Act and (ii) each report or other written
communication sent to the shareholders of the Previous General Partner;
(2) to obtain a copy of the Partnership's federal, state and local
income tax returns for each Fiscal Year;
(3) to obtain a current list of the name and last known business,
residence or mailing address of each Partner;
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(4) to obtain a copy of this Agreement and the Certificate and all
amendments thereto, together with executed copies of all powers of attorney
pursuant to which this Agreement, the Certificate and all amendments
thereto have been executed; and
(5) to obtain true and full information regarding the amount of cash
and a description and statement of any other property or services
contributed by each Partner and that each Partner has agreed to contribute
in the future, and the date on which each became a Partner.
B. The Partnership shall notify any Limited Partner that is a Qualifying
Party, on request, of the then current Adjustment Factor or any change made to
the Adjustment Factor.
C. Notwithstanding any other provision of this Section 8.5, the General
Partner may keep confidential from the Limited Partners, for such period of time
as the General Partner determines in its sole and absolute discretion to be
reasonable, any information that (i) the General Partner believes to be in the
nature of trade secrets or other information the disclosure of which the General
Partner in good faith believes is not in the best interests of the Partnership
or the General Partner or (ii) the Partnership or the General Partner is
required by law or by agreements with unaffiliated third parties to keep
confidential.
Section 8.6 Redemption Rights of Qualifying Parties.
A. After the first Twelve-Month Period, a Qualifying Party, but no other
Limited Partner or Assignee, shall have the right (subject to the terms and
conditions set forth herein) to require the Partnership to redeem all or a
portion of the Redeemable Units held by such Tendering Party (such Redeemable
Units being hereafter "Tendered Units") in exchange (a "Redemption") for REIT
shares issuable on, or the Cash Amount payable on, the Specified Redemption
Date, as determined by the Partnership in its sole discretion. Any Redemption
shall be exercised pursuant to a Notice of Redemption delivered to the General
Partner by the Qualifying Party when exercising the Redemption right (the
"Tendering Party"). A Tendering Party shall have no right to receive
distributions with respect to any Tendered Units (other than the Cash Amount)
paid after delivery of the Notice of Redemption, whether or not the Partnership
Record Date for such distribution precedes or coincides with such delivery of
the Notice of Redemption. If the Partnership elects to redeem Tendered Units for
cash, the Cash Amount shall be delivered as a certified check payable to the
Tendering Party or, in the General Partner's sole and absolute discretion, in
immediately available funds.
B. If the Partnership elects to redeem Tendered Units for REIT Shares
rather than cash, then the Partnership shall direct the Previous General Partner
to issue and deliver such REIT Shares to the Tendering Party pursuant to the
terms set forth in this Section 8.6.B, in which case, (i) the Previous General
Partner, acting as a distinct legal entity, shall assume directly the obligation
with respect thereto and shall satisfy the Tendering Party's exercise of its
Redemption right, and (ii) such transaction shall be treated, for federal income
tax purposes, as a transfer by the Tendering Party of such Tendered Units to the
Previous General Partner in exchange for REIT shares. The percentage of the
Tendered Units tendered for Redemption by the Tendering Party for which the
Partnership elects to cause the Previous General Partner to issue REIT Shares
(rather than cash) is referred to as the "Applicable Percentage." In making such
election to cause the Previous General Partner to acquire Tendered Units, the
Partnership shall act in a fair, equitable and reasonable manner that neither
prefers one group or class of Qualifying Parties over another nor discriminates
against a group or class of Qualifying Parties. If the Partnership elects to
redeem any number of Tendered Units for REIT Shares, rather than cash, on the
Specified Redemption Date, the Tendering Party shall sell such number of the
Tendered Units to the Previous General Partner in exchange for a number of REIT
Shares equal to the product of the REIT Shares Amount and the Applicable
Percentage. The Tendering Party shall submit (i) such information, certification
or affidavit as the Previous General Partner may reasonably require in
connection with the application of the Ownership Limit and other restrictions
and limitations of the Charter to any such acquisition and (ii) such written
representations, investment letters, legal opinions or other instruments
necessary, in the Previous General Partner's view, to effect compliance with the
Securities Act. The product of the Applicable Percentage and the REIT Shares
Amount, if applicable, shall be delivered by the Previous General Partner as
duly authorized, validly issued, fully paid and accessible REIT Shares and, if
applicable, Rights, free of any pledge, lien, encumbrance or restriction, other
than the Ownership Limit and
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other restrictions provided in the Charter, the Bylaws of the Previous General
Partner, the Securities Act and relevant state securities or "blue sky" laws.
Neither any Tendering Party whose Tendered Units are acquired by the Previous
General Partner pursuant to this Section 8.6.B, any Partner, any Assignee nor
any other interested Person shall have any right to require or cause the
Previous General Partner or the General Partner to register, qualify or list any
REIT Shares owned or held by such Person, whether or not such REIT Shares are
issued pursuant to this Section 8.6.B, with the SEC, with any state securities
commissioner, department or agency, under the Securities Act or the Exchange Act
or with any stock exchange; provided, however, that this limitation shall not be
in derogation of any registration or similar rights granted pursuant to any
other written agreement between the Previous General Partner and any such
Person. Notwithstanding any delay in such delivery, the Tendering Party shall be
deemed the owner of such REIT Shares and Rights for all purposes, including,
without limitation, rights to vote or consent, receive dividends, and exercise
rights, as of the Specified Redemption Date. REIT Shares issued upon an
acquisition of the Tendered Units by the Previous General Partner pursuant to
this Section 8.6.B may contain such legends regarding restrictions under the
Securities Act and applicable state securities laws as the Previous General
Partner in good faith determines to be necessary or advisable in order to ensure
compliance with such laws.
C. Notwithstanding the provisions of Section 8.6.A and 8.6.B hereof, the
Tendering Parties (i) where the Redemption would consist of less than all the
Partnership Common Units held by Partners other than the General Partner and the
Special Limited Partner, shall not be entitled to elect or effect a Redemption
to the extent that the aggregate Percentage Interests of the Limited Partners
(other than the Special Limited Partner) would be reduced, as a result of the
Redemption, to less that percent (1%) and (ii) shall have no rights under this
Agreement that would otherwise be prohibited under the Charter. To the extent
that any attempted Redemption would be in violation of this Section 8.6.C, it
shall be null and void ab initio, and the Tendering Party shall not acquire any
rights or economic interests in REIT Shares otherwise issuable by the Previous
General Partner under Section 8.6.B hereof.
D. In the event that the Partnership declines to cause the Previous General
Partner to acquire all of the Tendered Units from the Tendering Party in
exchange for REIT Shares pursuant to Section 8.6.B hereof following receipt of a
Notice of Redemption (a "Declination"):
(1) The Previous General Partner or the General Partner shall give
notice of such Declination to the Tendering Party on or before the close of
business on the Cut-Off Date.
(2) The Partnership may elect to raise funds for the payment of the
Cash Amount either (a) by requiring that the General Partner contribute
such funds from the proceeds of a registered public offering (a "Public
Offering Funding") by the Previous General Partner of a number of REIT
Shares ("Registrable Shares") equal to the REIT Shares Amount with respect
to the Tendered Units or (b) from any other sources (including, but not
limited to, the sale of any Property and the incurrence of additional Debt)
available to the Partnership.
(3) Promptly upon the General Partner's receipt of the Notice of
Redemption and the Previous General Partner or the General Partner giving
notice of the Partnership's Declination, the General Partner shall give
notice (a "Single Funding Notice") to all Qualifying Parties then holding a
Partnership Interest (or an interest therein) and having Redemption rights
pursuant to this Section 8.6 and require that all such Qualifying Parties
elect whether or not to effect a Redemption of their Partnership Common
Units to be funded through such Public Offering Funding. In the event that
any such Qualifying Party elects to effect such a Redemption, it shall give
notice thereof and of the number of Partnership Common Units to be made
subject thereon in writing to the General Partner within ten (10) Business
Days after receipt of the Single Funding Notice, and such Qualifying Party
shall be treated as a Tendering Party for all purposes of this Section 8.6.
In the event that a Qualifying Party does not so elect, it shall be deemed
to have waived its right to effect a Redemption for the current
Twelve-Month Period; provided, however, that the Previous General Partner
shall not be required to acquire Partnership Common Units pursuant to this
Section 8.6.D more than twice within a Twelve-Month Period.
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Any proceeds from a Public Offering Funding that are in excess of the Cash
Amount shall be for the sole benefit of the Previous General Partner and/or the
General Partner. The General Partner and/or the Special Limited Partner shall
make a Capital Contribution of such amounts to the Partnership for an additional
General Partner Interest and/or Limited Partner Interest. Any such contribution
shall entitle the General Partner and the Special Limited Partner, as the case
may be, to an equitable Percentage Interest adjustment.
E. Notwithstanding the provisions of Section 8.6.B hereof, the Previous
General Partner shall not, under any circumstances, elect to acquire Tendered
Units in exchange for the REIT Shares Amount if such exchange would be
prohibited under the Charter.
F. Notwithstanding anything herein to the contrary (but subject to Section
8.6.C hereof), with respect to any Redemption pursuant to this Section 8.6:
(1) All Partnership Common Units acquired by the Previous General
Partner pursuant to Section 8.6.B hereof shall be contributed by the
Previous General Partner to either or both of the General Partner and the
Special Limited Partner in such proportions as the Previous General
Partner, the General Partner and the Special Limited Partner shall
determine. Any Partnership Common Units so contributed to the General
Partner shall automatically, and without further action required, be
converted into and deemed to be a General Partner Interest comprised of the
same number of Partnership Common Units. Any Partnership Common Units so
contributed to the Special Limited Partner shall remain outstanding.
(2) Subject to the Ownership Limit, no Tendering Party may effect a
Redemption for less than five hundred (500) Redeemable Units or, if such
Tendering Party holds (as a Limited Partner or, economically, as an
Assignee) less than five hundred (500) Redeemable Units, all of the
Redeemable Units held by such Tendering Party.
(3) Each Tendering Party (a) may effect a Redemption only once in each
fiscal quarter of a Twelve-Month Period and (b) may not effect a Redemption
during the period after the Partnership Record Date with respect to a
distribution and before the record date established by the Previous General
Partner for a distribution to its shareholders of some or all of its
portion of such Partnership distribution.
(4) Notwithstanding anything herein to the contrary, with respect to
any Redemption or acquisition of Tendered Units by the Previous General
Partner pursuant to Section 8.6.B hereof, in the event that the Previous
General Partner or the General Partner gives notice to all Limited Partners
(but excluding any Assignees) then owning Partnership Interests (a "Primary
Offering Notice") that the Previous General Partner desires to effect a
primary offering of its equity securities then, unless the Previous General
Partner and the General Partner otherwise consent, commencement of the
actions denoted in Section 8.6.E hereof as to a Public Offering Funding
with respect to any Notice of Redemption thereafter received, whether or
not the Tendering Party is a Limited Partner, may be delayed until the
earlier of (a) the completion of the primary offering or (b) ninety (90)
days following the giving of the Primary Offering Notice.
(5) Without the Consent of the Previous General Partner, no Tendering
Party may effect a Redemption within ninety (90) days following the closing
of any prior Public Offering Funding.
(6) The consummation of such Redemption shall be subject to the
expiration or termination of the applicable waiting period, if any, under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.
(7) The Tendering Party shall continue to own (subject, in the case of
an Assignee, to the provision of Section 11.5 hereof) all Redeemable Units
subject to any Redemption, and be treated as a Limited Partner or an
Assignee, as applicable, with respect to such Redeemable Units for all
purposes of this Agreement, until such Redeemable Units are either paid for
by the Partnership pursuant to Section 8.6.A hereof or transferred to the
Previous General Partner (or directly to the General Partner or Special
Limited Partner) and paid for, by the issuance of the REIT Shares, pursuant
to Section 8.6.B hereof on the Specified Redemption Date. Until a Specified
Redemption Date and an acquisition of the Tendered Units by the Previous
General Partner pursuant to Section 8.6.B hereof, the Tendering Party shall
have
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no rights as a shareholder of the Previous General Partner with respect to
the REIT Shares issuable in connection with such acquisition.
For purposes of determining compliance with the restrictions set forth in this
Section 8.6.F, all Partnership Common Units beneficially owned by a Related
Party of a Tendering Party shall be considered to be owned or held by such
Tendering Party.
G. In connection with an exercise of Redemption rights pursuant to this
Section 8.6, the Tendering Party shall submit the following to the General
Partner, in addition to the Notice of Redemption:
(1) A written affidavit, dated the same date as the Notice of
Redemption, (a) disclosing the actual and constructive ownership, as
determined for purposes of Code Sections 856(a)(6) and 856(h), of REIT
Shares by (i) such Tendering Party and (ii) any Related Party and (b)
representing that, after giving effect to the Redemption, neither the
Tendering Party nor any Related Party will own REIT Shares in excess of the
Ownership Limit;
(2) A written representation that neither the Tendering Party nor any
Related Party has any intention to acquire any additional REIT Shares prior
to the closing of the Redemption on the Specified Redemption Date; and
(3) An undertaking to certify, at and as a condition to the closing of
the Redemption on the Specified Redemption Date, that either (a) the actual
and constructive ownership of REIT Shares by the Tendering Party and any
Related Party remain unchanged from that disclosed in the affidavit
required by Section 8.6.G(1) or (b) after giving effect to the Redemption,
neither the Tendering Party nor any Related Party shall own REIT Shares in
violation of the Ownership Limit.
Section 8.7 Partnership Right to Call Limited Partner
Interests. Notwithstanding any other provision of this Agreement, on and after
the date on which the aggregate Percentage Interests of the Limited Partners
(other than the Special Limited Partner) are less than one percent (1%), the
Partnership shall have the right, but not the obligation, from time to time and
at any time to redeem any and all outstanding Limited Partner Interests (other
than the Special Limited Partner's Limited Partner Interest) by treating any
Limited Partner as a Tendering Party who has delivered a Notice of Redemption
pursuant to Section 8.6 hereof for the amount of Partnership Common Units to be
specified by the General Partner, in its sole and absolute discretion, by notice
to such Limited Partner that the Partnership has elected to exercise its rights
under this Section 8.7. Such notice given by the General Partner to a Limited
Partner pursuant to this Section 8.7 shall be treated as if it were a Notice of
Redemption delivered to the General Partner by such Limited Partner. For
purposes of this Section 8.7, (a) any Limited Partner (whether or not otherwise
a Qualifying Party) may, in the General Partner's sole and absolute discretion,
be treated as a Qualifying Party that is a Tendering Party and (b) the
provisions of Sections 8.6.C(1), 8.6.F(2), 8.6.F(3) and 8.6.F(5) hereof shall
not apply, but the remainder of Section 8.6 hereof shall apply, mutatis
mutandis.
ARTICLE 9
BOOKS, RECORDS, ACCOUNTING AND REPORTS
Section 9.1 Records and Accounting.
A. The General Partner shall keep or cause to be kept at the principal
office of the Partnership those records and documents required to be maintained
by the Act and other books and records deemed by the General Partner to be
appropriate with respect to the Partnership's business, including, without
limitation, all books and records necessary to provide to the Limited Partners
any information, lists and copies of documents required to be provided pursuant
to Section 8.5.A or Section 9. hereof. Any records maintained by or on behalf of
the Partnership in the regular course of its business may be kept on, or be in
the form for, punch cards, magnetic tape, photographs, micrographics or any
other information storage device, provided that the records so maintained are
convertible into clearly legible written form within a reasonable period of
time.
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B. The books of the Partnership shall be maintained, for financial and tax
reporting purposes, on an accrual basis in accordance with generally accepted
accounting principles, or on such other basis as the General Partner determines
to be necessary or appropriate. To the extent permitted by sound accounting
practices and principles, the Partnership, the General Partner and the Previous
General Partner may operate with integrated or consolidated accounting records,
operations and principles.
Section 9.2 Fiscal Year. The Fiscal Year of the Partnership shall be the
calendar year.
Section 9.3 Reports.
A. As soon as practicable, but in no event later than one hundred five
(105) days after the close of each Fiscal Year, the General Partner shall cause
to be mailed to each Limited Partner, of record as of the close of the Fiscal
Year, an annual report containing financial statements of the Partnership, or of
the Previous General Partner if such statements are prepared solely on a
consolidated basis with the Previous General Partner, for such Fiscal Year,
presented in accordance with generally accepted accounting principles, such
statements to be audited by a nationally recognized firm of independent public
accountants selected by the General Partner.
B. As soon as practicable, but in no event later than one hundred five
(105) days after the close of each calendar quarter (except the last calendar
quarter of each year), the General Partner shall cause to be mailed to each
Limited Partner, of record as of the last day of the calendar quarter, a report
containing unaudited financial statements of the Partnership, or of the Previous
General Partner if such statements are prepared solely on a consolidated basis
with the Previous General Partner, and such other information as may be required
by applicable law or regulation or as the General Partner determines to be
appropriate. At the request of any Limited Partner, the General Partner shall
provide access to the books, records and workpapers upon which the reports
required by this Section 9.3 are based, to the extent required by the Act.
ARTICLE 10
TAX MATTERS
Section 10.1 Preparation of Tax Returns. The General Partner shall arrange
for the preparation and timely filing of all returns with respect to Partnership
income, gains, deductions, losses and other items required of the Partnership
for federal and state income tax purposes and shall use all reasonable effort to
furnish, within ninety (90) days of the close of each taxable year, the tax
information reasonably required by Limited Partners for federal and state income
tax reporting purpose The Limited Partners shall promptly provide the General
Partner with such information relating to the Contributed Properties, including
tax basis and other relevant information, as may be reasonably requested by the
General Partner from time to time.
Section 10.2 Tax Elections. Except as otherwise provided herein, the
General Partner shall, in its sole and absolute discretion, determine whether to
make any available election pursuant to the Code, including, but not limited to,
the election under Code Section 754 and the election to use the "recurring item"
method of accounting provided under Code Section 461(h) with respect to property
taxes imposed on the Partnership's Properties; provided, however, that, if the
"recurring item" method of accounting is elected with respect to such property
taxes, the Partnership shall pay the applicable property taxes prior to the date
provided in Code Section 461(h) for purposes of determining economic
performance. The General Partner shall have the right to seek to revoke any such
election (including, without limitation, any election under Code Sections 461(h)
and 754) upon the General Partner's determination in its sole and absolute
discretion that such revocation is in the best interests of the Partners.
Section 10.3 Tax Matters Partner.
A. The General Partner shall be the "tax matters partner" of the
Partnership for federal income tax purposes. The tax matters partner shall
receive no compensation for its services. All third-party costs and expenses
incurred by the tax matters partner in performing its duties as such (including
legal and accounting fees and expenses) shall be borne by the Partnership in
addition to any reimbursement pursuant to Section 7.4 hereof. Nothing herein
shall be construed to restrict the Partnership from engaging an accounting firm
to assist
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the tax matters partner in discharging its duties hereunder, so long as the
compensation paid by the Partnership for such services is reasonable. At the
request of any Limited Partner, the General Partner agrees to consult with such
Limited Partner with respect to the preparation and filing of any returns and
with respect to any subsequent audit or litigation relating to such returns;
provided, however, that the filing of such returns shall be in the sole and
absolute discretion of the General Partner.
B. The tax matters partner is authorized, but not required:
(1) to enter into any settlement with the IRS with respect to any
administrative or judicial proceedings for the adjustment of Partnership
items required to be taken into account by a Partner for income tax
purposes (such administrative proceedings being referred to as a "tax
audit" and such judicial proceedings being referred to as "judicial
review"), and in the settlement agreement the tax matters partner may
expressly state that such agreement shall bind all Partners, except such
settlement agreement shall not bind any Partner (i) who (within the time
prescribed pursuant to the Code and Regulations) files a statement with the
IRS providing that the tax matters partner shall not have the authority to
enter into a settlement agreement on behalf of such Partner or (ii) who is
a "notice partner" (as defined in Code Section 6231) or a member of a
"notice group" (as defined in Code Section 6223(b)(2));
(2) in the event that a notice of a final administrative adjustment at
the Partnership level of any item required to be taken into account by a
Partner for tax purposes (a "final adjustment") is mailed to the tax
matters partner, to seek judicial review of such final adjustment,
including the filing of a petition for readjustment with the United States
Tax Court or the United States Claims Court, or the filing of a complaint
for refund with the District Court of the United States the district in
which the Partnership's principal place of business is located;
(3) to intervene in any action brought by any other Partner for
judicial review of a final adjustment;
(4) to file a request for an administrative adjustment with the IRS at
any time and, if any part of such request is not allowed by the IRS, to
file an appropriate pleading (petition or complaint) for judicial review
with respect to such request;
(5) to enter into an agreement with the IRS to extend the period for
assessing any tax that is attributable to any item required to be taken
into account by a Partner for tax purposes, or an item affected by such
item; and
(6) to take any other action on behalf of the Partners in connection
with any tax audit or judicial review proceeding to the extent permitted by
applicable law or regulations.
The taking of any action and the incurring of any expense by the tax matters
partner in connection with any such proceeding, except to the extent required by
law, is a matter in the sole and absolute discretion of the tax matters partner
and the provisions relating to indemnification of the General Partner set forth
in Section 7.7 hereof shall be fully applicable to the tax matters partner in
its capacity as such.
Section 10.4 Withholding. Each Limited Partner hereby authorizes the
Partnership to withhold from or pay on behalf of or with respect to such Limited
Partner any amount of federal, state, local or foreign taxes that the General
Partner determines that the Partnership is required to withhold or pay with
respect to any amount distributable or allocable to such Limited Partner
pursuant to this Agreement, including, without limitation, any taxes required to
be withheld or paid by the Partners pursuant to Code Section 1441, Code Section
1442, Code Section 1445 or Code Section 1446. Any amount paid on behalf of or
with respect to a Limited Partner shall constitute a loan by the Partnership to
such Limited Partner, which loan shall be repaid by such Limited Partner within
fifteen (15) days after notice from the General Partner that such payment must
be made unless (i) the Partnership withholds such payment from a distribution
that would otherwise be made to the Limited Partner or (ii) the General Partner
determines, in its sole and absolute discretion, that such payment may be
satisfied out of the Available Funds of the Partnership that would, but for such
payment, be distributed to the Limited Partner. Each Limited Partner hereby
unconditionally and irrevocably grants to the Partnership a security interest in
such Limited Partner's Partnership Interest to secure such
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Limited Partner's obligation to pay to the Partnership any amounts required to
be paid pursuant to this Section 10.4. In the event that a Limited Partner fails
to pay any amounts owed to the Partnership pursuant to this Section 10.4 when
due, the General Partner may, in its sole and absolute discretion, elect to make
the payment to the Partnership on behalf of such defaulting Limited Partner, and
in such event shall be deemed to have loaned such amount to such defaulting
Limited Partner and shall succeed to all rights and remedies of the Partnership
as against such defaulting Limited Partner (including, without limitation, the
right to receive distributions). Any amounts payable by a Limited Partner
hereunder shall bear interest at the base rate on corporate loans at large
United States money center commercial banks, as published from time to time in
the Wall Street Journal, plus four (4) percentage points (but not higher than
the maximum lawful rate) from the date such amount is due (i.e., fifteen (15)
days after demand) until such amount is paid in full. Each Limited Partner shall
take such actions as the Partnership or the General Partner shall request in
order to perfect or enforce the security interest created hereunder.
ARTICLE 11
TRANSFERS AND WITHDRAWALS
Section 11.1 Transfer.
A. No part of the interest of a Partner shall be subject to the claims of
any creditor, to any spouse for alimony or support, or to legal process, and may
not be voluntarily or involuntarily alienated or encumbered except as may be
specifically provided for in this Agreement.
B. No Partnership Interest shall be Transferred, in whole or in part,
except in accordance with the terms and conditions set forth in this Article 11.
Any Transfer or purported Transfer of a Partnership Interest not made in
accordance with this Article 11 shall be null and void ab initio.
C. Notwithstanding the other provisions of this Article 11 (other than
Section 11.6.D hereof), the Partnership Interests of the General Partner and the
Special Limited Partner may be Transferred, in whole or in part, at any time or
from time to time, to or among the Previous General Partner, the General
Partner, the Special Limited Partner, and any other Person that is, at the time
of such Transfer, a "qualified REIT subsidiary" (within the meaning of Code
Section 856(i)(2)) with respect to the Previous General Partner. Any transferee
of the entire General Partner Interest pursuant to this Section 11.1.C shall
automatically become, without further action or Consent of any Limited Partners,
the sole general partner of the Partnership, subject to all the rights,
privileges, duties and obligations under this Agreement and the Act relating to
a general partner. Any transferee of a Limited Partner Interest pursuant to this
Section 11.1.C shall automatically become, without further action or Consent of
any Limited Partners, a Substituted Limited Partner. Upon any Transfer permitted
by this Section 11.1.C, the transferor Partner shall be relieved of all its
obligations under this Agreement. The provisions of Section 11.2.B (other than
the last sentence thereof), 11.3, 11.4.A and 11.5 hereof shall not apply to any
Transfer permitted by this Section 11.1.C.
Section 11.2 Transfer of General Partner's Partnership Interest.
A. The General Partner may not Transfer any of its General Partner Interest
or withdraw from the Partnership except as provided in Sections 11.2.B and
11.2.C hereof.
B. The General Partner shall not withdraw from the Partnership and shall
not Transfer all or any portion of its interest in the Partnership (whether by
sale, disposition, statutory merger or consolidation, liquidation or otherwise)
without the Consent of the Limited Partners, which Consent may be given or
withheld in the sole and absolute discretion of the Limited Partners. Upon any
Transfer of such a Partnership Interest pursuant to the Consent of the Limited
Partners and otherwise in accordance with the provisions of this Section 11.2.B,
the transferee shall become a successor General Partner for all purposes herein,
and shall be vested with the powers and rights of the transferor General
Partner, and shall be liable for all obligations and responsible for all duties
of the General Partner, once such transferee has executed such instruments as
may be necessary to effectuate such admission and to confirm the agreement of
such transferee to be bound by all the terms and provisions of this Agreement
with respect to the Partnership Interest so acquired. It is a condition to any
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Transfer otherwise permitted hereunder that the transferee assumes, by operation
of law or express agreement, all of the obligations of the transferor General
Partner under this Agreement with respect to such Transferred Partnership
Interest, and such Transfer shall relieve the transferor General Partner of its
obligations under this Agreement without the Consent of the Limited Partners. In
the event that the General Partner withdraws from the Partnership, in violation
of this Agreement or otherwise, or otherwise dissolves or terminates, or upon
the bankruptcy of the General Partner, a Majority in Interest of the Limited
Partners may elect to continue the Partnership business by selecting a successor
General Partner in accordance with the Act.
C. The General Partner may merge with another entity if immediately after
such merger substantially all of the assets of the surviving entity, other than
the General Partner Interest held by the General Partner, are contributed to the
Partnership as a Capital Contribution in exchange for Partnership Units.
Section 11.3 Limited Partners' Rights to Transfer.
A. General. Prior to the end of the first Twelve-Month Period, no Limited
Partner shall Transfer all or any portion of its Partnership Interest to any
transferee without the Consent of the General Partner, which Consent may be
withheld in its sole and absolute discretion; provided, however, that any
Limited Partner may, at any time, without the consent of the General Partner,
(i) Transfer all or part of its Partnership Interest to any Designated Party,
any Family Member, any Controlled Entity or any Affiliate, provided that the
transferee is, in any such case, a Qualified Transferee, or (ii) pledge (a
"Pledge") all or any portion of its Partnership Interest to a lending
institution, that is not an Affiliate of such Limited Partner, as collateral or
security for a bona fide loan or other extension of credit, and Transfer such
pledged Partnership Interest to such lending institution in connection with the
exercise of remedies under such loan or extension or credit (any Transfer or
Pledge permitted by this proviso is hereinafter referred to as a "Permitted
Transfer"). After such first Twelve-Month Period, each Limited Partner, and each
transferee of Partnership Units or Assignee pursuant to a Permitted Transfer,
shall have the right to Transfer all or any portion of its Partnership Interest
to any Person, subject to the provisions of Section 11.6 hereof and to
satisfaction of each of the following conditions:
(1) General Partner Right of First Refusal. The transferring Partner
shall give written notice of the proposed Transfer to the General Partner,
which notice shall state (i) the identity of the proposed transferee and
(ii) the amount and type of consideration proposed to be received for the
Transferred Partnership Units. The General Partner shall have ten (10)
Business Days upon which to give the Transferring Partner notice of its
election to acquire the Partnership Units on the proposed terms. If it so
elects, it shall purchase the Partnership Units on such terms within ten
(10) Business Days after giving notice of such election; provided, however,
that in the event that the proposed terms involve a purchase for cash, the
General Partner may at its election deliver in lieu of all or any portion
of such cash a note payable to the Transferring Partner at a date as soon
as reasonably practicable, but in no event later than one hundred eighty
(180) days after such purchase, and bearing interest at an annual rate
equal to the total dividends declared with respect to one (1) REIT Share
for the four (4) preceding fiscal quarters of the General Partner, divided
by the Value as of the closing of such purchase; provided, further, that
such closing may be deferred to the extent necessary to effect compliance
with the Hart-Scott-Rodino Antitrust Improvements Act of 1976, if
applicable, and any other applicable requirements of law. If it does not so
elect, the Transferring Partner may Transfer such Partnership Units to a
third party, on terms no more favorable to the transferee than the proposed
terms, subject to the other conditions of this Section 11.3.
(2) Qualified Transferee. Any Transfer of a Partnership Interest shall
be made only to a single Qualified Transferee; provided, however, that, for
such purposes, all Qualified Transferees that are Affiliates, or that
comprise investment accounts or funds managed by a single Qualified
Transferee and its Affiliates, shall be considered together to be a single
Qualified Transferee; provided, further, that each Transfer meeting the
minimum Transfer restriction of Section 11.3.A(3) hereof may be to a
separate Qualified Transferee.
(3) Minimum Transfer Restriction. Any Transferring Partner must
Transfer not less than the lesser of (i) the greater of five hundred (500)
Partnership Units or one-third ( 1/3) of the number of Partnership Units
owned by such Partner as of the Effective Date or (ii) all of the remaining
Partnership
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Units owned by such Transferring Partner; provided, however, that, for
purposes of determining compliance with the foregoing restriction, all
Partnership Units owned by Affiliates of Limited Partner shall be
considered to be owned by such Limited Partner.
(4) Transferee Agreement to Effect a Redemption. Any proposed
transferee shall deliver to the General Partner a written agreement
reasonably satisfactory to the General Partner to the effect that the
transferee will, within six (6) months after consummation of a Partnership
Common Units Transfer, tender its Partnership Common Units for Redemption
in accordance with the terms of the Redemption rights provided in Section
8.6 hereof.
(5) No Further Transfers. The transferee (other than a Designated
Party) shall not be permitted to effect any further Transfer of the
Partnership Units, other than to the General Partner.
(6) Exception for Permitted Transfers. The conditions of Sections
11.3.A(1) through 11.3.A(5) hereof shall not apply in the case of a
Permitted Transfer.
It is a condition to any Transfer otherwise permitted hereunder (whether or not
such Transfer is effected during or after the first Twelve-Month Period) that
the transferee assumes by operation of law or express agreement all of the
obligations of the transferor Limited Partner under this Agreement with respect
to such Transferred Partnership Interest, and no such Transfer (other than
pursuant to a statutory merger or consolidation wherein all obligations and
liabilities of the transferor Partner are assumed by a successor corporation by
operation of law) shall relieve the transferor Partner of its obligations under
this Agreement without the approval of the General Partner, in its sole and
absolute discretion. Notwithstanding the foregoing, any transferee of any
Transferred Partnership Interest shall be subject to any and all ownership
limitations (including, without limitation, the Ownership Limit) contained in
the Charter that may limit or restrict such transferee's ability to exercise its
Redemption rights, including, without limitation, the Ownership Limit. Any
transferee, whether or not admitted as a Substituted Limited Partner, shall take
subject to the obligations of the transferor hereunder. Unless admitted as a
Substituted Limited Partner, no transferee, whether by a voluntary Transfer, by
operation of law or otherwise, shall have any rights hereunder, other than the
rights of an Assignee as provided in Section 11.5 hereof.
B. Incapacity. If a Limited Partner is subject to Incapacity, the executor,
administrator, trustee, committee, guardian, conservator or receiver of such
Limited Partner's estate shall have all the rights of a Limited Partner, but not
more rights than those enjoyed by other Limited Partners, for the purpose of
settling or managing the estate, and such power as the Incapacitated Limited
Partner possessed to Transfer all or any part of its interest in the
Partnership. The Incapacity of Limited Partner, in and of itself, shall not
dissolve or terminate the Partnership.
C. Opinion of Counsel. In connection with any Transfer of a Limited Partner
Interest, the General Partner shall have the right to receive an opinion of
counsel reasonably satisfactory to it to the effect that the proposed Transfer
may be effected without registration under the Securities Act and will not
otherwise violate any federal or state securities laws or regulations applicable
to the Partnership or the Partnership Interests Transferred. If, in the opinion
of such counsel, such Transfer would require the filing of a registration
statement under the Securities Act or would otherwise violate any federal or
state securities laws or regulations applicable to the Partnership or the
Partnership Units, the General Partner may prohibit any Transfer otherwise
permitted under this Section 11.3 by a Limited Partner of Partnership Interests.
D. Adverse Tax Consequences. No Transfer by a Limited Partner of its
Partnership Interests (including any Redemption, any other acquisition of
Partnership Units by the General Partner or any acquisition of Partnership Units
by the Partnership) may be made to any person if (i) in the opinion of legal
counsel for the Partnership, it would result in the Partnership being treated as
an association taxable as a corporation, or (ii) such Transfer is effectuated
through an "established securities market" or a "secondary market (or the
substantial equivalent thereof)" within the meaning of Code Section 7704.
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Section 11.4 Substituted Limited Partners.
A. No Limited Partner shall have the right to substitute a transferee
(including any Designated Party or other transferees pursuant to Transfers
permitted by Section 11.3 hereof) as a Limited Partner in its place. A
transferee (including, but not limited to, any Designated Party) of the interest
of a Limited Partner may be admitted as a Substituted Limited Partner only with
the Consent of the General Partner, which Consent may be given or withheld by
the General Partner in its sole an absolute discretion. The failure or refusal
by the General Partner to permit a transferee of any such interests to become a
Substituted Limited Partner shall not give rise to any cause of action against
the Partnership or the General Partner. Subject to the foregoing, an Assignee
shall not be admitted as a Substituted Limited Partner until and unless it
furnishes to the General Partner (i) evidence of acceptance, in form and
substance satisfactory to the General Partner, of all the terms, conditions and
applicable obligations of this Agreement, (ii) a counterpart signature page to
this Agreement executed by such Assignee and (iii) such other documents and
instruments as may be required or advisable, in the sole and absolute discretion
of the General Partner, to effect such Assignee's admission as a Substituted
Limited Partner.
B. A transferee who has been admitted as a Substituted Limited Partner in
accordance with this Article 11 shall have all the rights and powers and be
subject to all the restrictions and liabilities of a Limited Partner under this
Agreement.
C. Upon the admission of a Substituted Limited Partner, the General Partner
shall amend Exhibit A to reflect the name, address and number of Partnership
Units of such Substituted Limited Partner and to eliminate or adjust, if
necessary, the name, address and number of Partnership Units of the predecessor
of such Substituted Limited Partner.
Section 11.5 Assignees. If the General Partner, in its sole and absolute
discretion, does not consent to the admission of any permitted transferee under
Section 11.3 hereof as a Substituted Limited Partner, as described in Section
11.4 hereof, such transferee shall be considered an Assignee for purposes of
this Agreement. An Assignee shall be entitled to all the rights of an assignee
of a limited partnership interest under the Act, including the right to receive
distributions from the Partnership and the share of Net Income, Net Losses and
other items of income, gain, loss, deduction and credit of the Partnership
attributable to the Partnership Units assigned to such transferee and the rights
to Transfer the Partnership Units provided in this Article 11, but shall not be
deemed to be a holder of Partnership Units for any other purpose under this
Agreement (other than as expressly provided in Section 8.6 hereof with respect
to a Qualifying Party that becomes a Tendering Party), and shall not be entitled
to effect a Consent or vote with respect to such Partnership Units on any matter
presented to the Limited Partners for approval (such right to Consent or vote,
to the extent provided in this Agreement or under the Act, fully remaining with
the transferor Limited Partner). In the event that any such transferee desires
to make a further assignment of any such Partnership Units, such transferee
shall be subject to all the provisions of this Article 11 to the same extent and
in the same manner as any Limited Partner desiring to make an assignment of
Partnership Units.
Section 11.6 General Provisions.
A. No Limited Partner may withdraw from the Partnership other than as a
result of a permitted Transfer of all of such Limited Partner's Partnership
Units in accordance with this Article 11, with respect to which the transferee
becomes a Substituted Limited Partner, or pursuant to a redemption (or
acquisition by the Previous General Partner) of all of its Partnership Units
pursuant to a Redemption under Section 8.6 hereof and/or pursuant to any
Partnership Unit Designation.
B. Any Limited Partner who shall Transfer all of its Partnership Units in a
Transfer (i) permitted pursuant to this Article 11 where such transferee was
admitted as a Substituted Limited Partner, (ii) pursuant to the exercise of its
rights to effect a redemption of all of its Partnership Units pursuant to a
Redemption under Section 8.6 hereof and/or pursuant to any Partnership Unit
Designation or (iii) to the Previous General Partner or the General Partner,
whether or not pursuant to Section 8.6.B hereof, shall cease to be a Limited
Partner.
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C. If any Partnership Unit is Transferred in compliance with the provisions
of this Article 11, or is redeemed by the Partnership, or acquired by the
Previous General Partner pursuant to Section 8.6 hereof, on any day other than
the first day of a Fiscal Year, then Net Income, Net Losses, each item thereof
and all other items of income, gain, loss, deduction and credit attributable to
such Partnership Unit for such Fiscal Year shall be allocated to the transferor
Partner or the Tendering Party, as the case may be, and, in the case of a
Transfer or assignment other than a Redemption, to the transferee Partner
(including, without limitation, the General Partner and the Special Limited
Partner as transferees of the Previous General Partner in the case of an
acquisition of Partnership Common Units pursuant to Section 8.6 hereof), by
taking into account their varying interests during the Fiscal Year in accordance
with Code Section 706(d), using the "interim closing of the books" method or
another permissible method selected by the General Partner. Solely for purposes
of making such allocations, each of such items for the calendar month in which a
Transfer occurs shall be allocated to the transferee Partner and none of such
items for the calendar month in which a Transfer or a Redemption occurs shall be
allocated to the transferor Partner or the Tendering Party, as the case may be,
if such Transfer occurs on or before the fifteenth (15th) day of the month,
otherwise such items shall be allocated to the transferor. All distributions of
Available Cash attributable to such Partnership Unit with respect to which the
Partnership Record Date is before the date of such Transfer, assignment or
Redemption shall be made to the transferor Partner or the Tendering Party, as
the case may be, and, in the case of a Transfer other than a Redemption, all
distributions of Available Cash thereafter attributable to such Partnership Unit
shall be made to the transferee Partner.
D. In addition to any other restrictions on Transfer herein contained, in
no event may any Transfer or assignment of a Partnership Interest by any Partner
(including any Redemption, any acquisition of Partnership Units by the Previous
General Partner or any other acquisition of Partnership Units by the
Partnership) be made (i) to any person or entity who lacks the legal right,
power or capacity to own a Partnership Interest; (ii) in violation of applicable
law; (iii) of any component portion of a Partnership Interest, such as the
Capital Account, or rights to distributions, separate and apart from all other
components of a Partnership Interest; (iv) in the event that such Transfer would
cause either (a) the Previous General Partner to cease to comply with the REIT
Requirements or (b) the General Partner or the Special Limited Partner to cease
to qualify as a "qualified REIT subsidiary" (within the meaning of Code Section
856(i)(2)); (v) if such Transfer would, in the opinion of counsel to the
Partnership or the General Partner, cause a termination of the Partnership for
federal or state income tax purposes (except as a result of the Redemption (or
acquisition by the Previous General Partner) of all Partnership Common Units
held by all Limited Partners other than the Special Limited Partner); (vi) if
such Transfer would, in the opinion of legal counsel to the Partnership, cause
the Partnership to cease to be classified as a partnership for federal income
tax purposes (except as a result of the Redemption (or acquisition by the
Previous General Partner) of all Partnership Common Units held by all Limited
Partners other than the Special Limited Partner); (vii) if such Transfer would
cause the Partnership to become, with respect to any employee benefit plan
subject to Title I of ERISA, a "party-in-interest" (as defined in ERISA Section
3(14)) or a "disqualified person" (as defined in Code Section 4975(c)); (viii)
if such Transfer would, in the opinion of legal counsel to the Partnership,
cause any portion of the assets of the Partnership to constitute assets of any
employee benefit plan pursuant to Department of Labor Regulations Section
2510.2-101; (ix) if such Transfer requires the registration of such Partnership
Interest pursuant to any applicable federal or state securities laws; (x) if
such Transfer causes the Partnership to become a "publicly traded partnership,"
as such term is defined in Code Section 469(k)(2) or Code 7704(b); or (xi) if
such Transfer subjects the Partnership to regulation under the Investment
Company Act of 1940, the Investment Advisors Act of 1940 or ERISA, each as
amended.
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ARTICLE 12
ADMISSION OF PARTNERS
Section 12.1 Admission of Successor General Partner. A successor to all of
the General Partner's General Partner Interest pursuant to Section 11.2 hereof
who is proposed to be admitted as a successor General Partner shall be admitted
to the Partnership as the General Partner, effective immediately prior to such
Transfer. Any such successor shall carry on the business of the Partnership
without dissolution. In each case, the admission shall be subject to the
successor General Partner executing and delivering to the Partnership an
acceptance of all of the terms and conditions of this Agreement and such other
documents or instruments as may be required to effect the admission.
Section 12.2 Admission of Additional Limited Partners.
A. After the admission to the Partnership of an Original Limited Partner on
the date hereof, a Person (other than an existing Partner) who makes a Capital
Contribution to the Partnership in accordance with this Agreement shall be
admitted to the Partnership as an Additional Limited Partner only upon
furnishing to the General Partner (i) evidence of acceptance, in form and
substance satisfactory to the General Partner, of all of the terms and
conditions of this Agreement, including, without limitation, the power of
attorney granted in Section 2.4 hereof, (ii) a counterpart signature page to
this Agreement executed by such Person and (iii) such other documents or
instruments as may be required in the sole and absolute discretion of the
General Partner in order to effect such Person's admission as an Additional
Limited Partner.
B. Notwithstanding anything to the contrary in this Section 12.2, no Person
shall be admitted as an Additional Limited Partner without the consent of the
General Partner, which consent may be given or withheld in the General Partner's
sole and absolute discretion. The admission of any Person as an Additional
Limited Partner shall become effective on the date upon which the name of such
Person is recorded on the books and records of the Partnership, following the
consent of the General Partner to such admission.
C. If any Additional Limited Partner is admitted to the Partnership on any
day other than the first day of a Fiscal Year, then Net Income, Net Losses, each
item thereof and all other items of income, gain, loss, deduction and credit
allocable among Partners and Assignees for such Fiscal Year shall be allocated
among such Additional Limited Partner and all other Partners and Assignees by
taking into account their varying interests during the Fiscal Year in accordance
with Code Section 7 using the "interim closing of the books" method or another
permissible method selected by the General Partner. Solely for purposes of
making such allocations, each of such items for the calendar month in which an
admission of any Additional Limited Partner occurs shall be allocated among all
the Partners and Assignees including such Additional Limited Partner, in
accordance with the principles described in Section 11.6.C hereof. All
distributions of Available Cash with respect to which the Partnership Record
Date is before the date of such admission shall be made solely to Partners and
Assignees other than the Additional Limited Partner, and all distributions of
Available Cash thereafter shall be made to all the Partners and Assignees
including such Additional Limited Partner.
Section 12.3 Amendment of Agreement and Certificate of Limited
Partnership. For the admission to the Partnership of any Partner, the General
Partner shall take all steps necessary and appropriate under the Act to amend
the records of the Partnership and, if necessary, to prepare as soon as
practical an amendment of this Agreement (including an amendment of Exhibit A)
and, if required by law, shall prepare and file an amendment to the Certificate
and may for this purpose exercise the power attorney granted pursuant to Section
2.4 hereof.
Section 12.4 Admission of Initial Limited Partners. The Persons listed on
Exhibit A as limited partners of the Partnership shall be admitted to the
Partnership as Limited Partners upon their execution and delivery of this
Agreement.
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ARTICLE 13
DISSOLUTION, LIQUIDATION AND TERMINATION
Section 13.1 Dissolution. The Partnership shall not be dissolved by the
admission of Substituted Limited Partners or Additional Limited Partners or by
the admission of a successor General Partner in accordance with the terms of
this Agreement. Upon the withdrawal of the General Partner, any successor
General Partner shall continue the business of the Partnership without
dissolution. However, the Partnership shall dissolve, and its affairs shall be
wound up, upon the first to occur of an of the following (each a "Liquidating
Event"):
A. the expiration of its term as provided in Section 2.5 hereof;
B. an event of withdrawal, as defined in the Act (including, without
limitation, bankruptcy), of the sole General Partner unless, within ninety (90)
days after the withdrawal, a "majority in interest" (as such phrase is used in
Section 17-801(3) of the Act) of the remaining Partners agree in writing, in
their sole and absolute discretion, to continue the business of the Partnership
and to the appointment, effective as of the date of withdrawal, of a successor
General Partner:
C. an election to dissolve the Partnership made by the General Partner in
its sole and absolute discretion, with or without the Consent of the Limited
Partners;
D. entry of a decree of judicial dissolution of the Partnership pursuant to
the provisions of the Act;
E. the occurrence of a Terminating Capital Transaction;
F. the Redemption (or acquisition by the Previous General Partner, the
General Partner and/or the Special Limited Partner) of all Partnership Common
Units other than Partnership Common Units held by the General Partner or the
Special Limited Partner; or
G. the Redemption (or acquisition by the General Partner) of all
Partnership Common Units other than Partnership Common Units held by the General
Partner.
Section 13.2 Winding Up.
A. Upon the occurrence of a Liquidating Event, the Partnership shall
continue solely for the purposes of winding up its affairs in an orderly manner,
liquidating its assets and satisfying the claims of its creditors and Partners.
After the occurrence of a Liquidating Event, no Partner shall take any action
that is inconsistent with, or not necessary to or appropriate for, the winding
up of the Partnership's business and affairs. The General Partner (or, in the
event that there is no remaining General Partner or the General Partner has
dissolved, become bankrupt within the meaning of the Act or ceased to operate,
any Person elected by a Majority in Interest of the Limited Partners (the
General Partner or such other Person being referred to herein as the
"Liquidator")) shall be responsible for overseeing the winding up and
dissolution of the Partnership and shall take full account of the Partnership's
liabilities and property, and the Partnership property shall be liquidated as
promptly as is consistent with obtaining the fair value thereof, and the
proceeds therefrom (which may, to the extent determined by the General Partner,
include shares of stock in the Previous General Partner) shall be applied and
distributed in the following order:
(1) First, to the satisfaction of all of the Partnership's debts and
liabilities to creditors other than the Partners and their Assignees
(whether by payment or the making of reasonable provision for payment
thereof);
(2) Second, to the satisfaction of all of the Partnership's debts and
liabilities to the General Partner (whether by payment or the making of
reasonable provision for payment thereof), including, but not limited to,
amounts due as reimbursements under Section 7.4 hereof;
(3) Third, to the satisfaction of all of the Partnership's debts and
liabilities to the other Partners and any Assignees (whether by payment or
the making of reasonable provision for payment thereof); and
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(4) Subject to the terms of any Partnership Unit Designation, the
balance, if any, to the General Partner, the Limited Partners and any
Assignees in accordance with and in proportion to their positive Capital
Account balances, after giving effect to all contributions, distributions
and allocations for all periods.
The General Partner shall not receive any additional compensation for any
services performed pursuant to this Article 13.
B. Notwithstanding the provisions of Section 13.2.A hereof that require
liquidation of the assets of the Partnership, but subject to the order of
priorities set forth therein, if prior to or upon dissolution of the Partnership
the Liquidator determines that an immediate sale of part or all of the
Partnership's assets would be impractical or would cause undue loss to the
Partners, the Liquidator may, in its sole and absolute discretion, defer for a
reasonable time the liquidation of any except those necessary to satisfy
liabilities of the Partnership (including to those Partners as creditors) and/or
distribute to the Partners, in lieu of cash, as tenants in common and in
accordance with the provisions of Section 13.2.A hereof, undivided interests in
such Partnership assets as the Liquidator deems not suitable for liquidation.
Any such distributions in kind shall be made only if, in the good faith judgment
of the Liquidator, such distributions in kind are in the best interest of the
Partners, and shall be subject to such conditions relating to the disposition
and management of such properties as the Liquidator deems reasonable and
equitable and to any agreements governing the operation of such properties at
such time. The Liquidator shall determine the fair market value of any property
distributed in kind using such reasonable method of valuation as it may adopt.
C. In the event that the Partnership is "liquidated" within the meaning of
Regulations Section 1.704-1(b)(2)(ii)(g), distributions shall be made pursuant
to this Article 13 to the Partners and Assignees that have positive Capital
Accounts in compliance with Regulations Section 1.704-1(b)(2)(ii)(b)(2) to the
extent of, and in proportion to, positive Capital Account balances. If any
Partner has a deficit balance in its Capital Account (after giving effect to all
contributions, distributions and allocations for all taxable years, including
the year during which such liquidation occurs), such Partner shall have no
obligation to make any contribution to the capital of the Partnership with
respect to such deficit, and such deficit shall not be considered a debt owed to
the Partnership or to any other Person for any purpose whatsoever. In the sole
and absolute discretion of the General Partner or the Liquidator, a pro rata
portion of the distributions that would otherwise be made to the Partners
pursuant to this Article 13 may be withheld or escrowed to provide a reasonable
reserve for Partnership liabilities (contingent or otherwise) and to reflect the
unrealized portion of any installment obligations owed to the Partnership,
provided that such withheld or escrowed amounts shall be distributed to the
General Partner and Limited Partners in the manner and order of priority set
forth in Section 13.2.A hereof as soon as practicable.
Section 13.3 Deemed Distribution and Recontribution. Notwithstanding any
other provision of this Article 13, in the event that the Partnership is
liquidated within the meaning of Regulations Section 1.704-1(b)(2)(ii)(g), but
no Liquidating Event has occurred, the Partnership's Property shall not be
liquidated, the Partnership's liabilities shall not be paid or discharged and
the Partnership's affairs shall not be wound up. Instead, for federal income tax
purposes the Partnership shall be deemed to have distributed the Property in
kind to the Partners and the Assignees, who shall be deemed to have assumed and
taken such Property subject to all Partnership liabilities, all in accordance
with their respective Capital Accounts. Immediately thereafter, the Partners and
the Assignees shall be deemed to have recontributed the Partnership Property in
kind to the Partnership, which shall be deemed to have assumed and taken such
Property subject to all such liabilities; provided, however, that nothing in
this Section 13.3 shall be deemed to have constituted any Assignee as a
Substituted Limited Partner without compliance with the provisions of Section
11.4 hereof.
Section 13.4 Rights of Limited Partners. Except as otherwise provided in
this Agreement, (a) each Limited Partner shall look solely to the assets of the
Partnership for the return of its Capital Contribution, (b) no Limited Partner
shall have the right or power to demand or receive property other than cash from
the Partnership and (c) no Limited Partner shall have priority over any other
Limited Partner as to the return of its Capital Contributions, distributions or
allocations.
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Section 13.5 Notice of Dissolution. In the event that a Liquidating Event
occurs or an event occurs that would, but for an election or objection by one or
more Partners pursuant to Section 13.1 hereof, result in a dissolution of the
Partnership, the General Partner shall, within thirty (30) days thereafter,
provide written notice thereof to each of the Partners and, in the General
Partner's sole and absolute discretion or as required by the Act, to all other
parties with whom the Partners regularly conducts business (as determined in the
sole and absolute discretion of the General Partner), and the General Partner
may, or, if required by the Act, shall, publish notice thereof in a newspaper of
general circulation in each place in which the Partnership regularly conducts
business (as determined in the sole and absolute discretion of the General
Partner).
Section 13.6 Cancellation of Certificate of Limited Partnership. Upon the
completion of the liquidation of the Partnership cash and property as provided
in Section 13.2 hereof, the Partnership shall be terminated, a certificate of
cancellation shall be filed with the State of Delaware, all qualifications of
the Partnership as a foreign limited partnership or association in jurisdictions
other than the State of Delaware shall be cancelled, and such other actions as
may be necessary to terminate the Partnership shall be taken.
Section 13.7 Reasonable Time for Winding-Up. A reasonable time shall be
allowed for the orderly winding-up of the business and affairs of the
Partnership and the liquidation of its assets pursuant to Section 13.2 hereof,
in order to minimize any losses otherwise attendant upon such winding-up, and
the provisions of this Agreement shall remain in effect between the Partners
during the period of liquidation.
ARTICLE 14
PROCEDURES FOR ACTIONS AND CONSENTS
OF PARTNERS; AMENDMENTS; MEETINGS
Section 14.1 Procedures for Actions and Consents of Partners. The actions
requiring consent or approval of Limited Partners pursuant to this Agreement,
including Section 7.3 hereof, or otherwise pursuant to applicable law, are
subject to the procedures set forth in this Article 14.
Section 14.2 Amendments. Amendments to this Agreement may be proposed by
the General Partner or by a Majority in Interest of the Limited Partners.
Following such proposal, the General Partner shall submit any proposed amendment
to the Limited Partners. The General Partner shall seek the written consent of
the Limited Partners on the proposed amendment or shall call a meeting to vote
thereon and to transact any other business that the General Partner may deem
appropriate. For purposes of obtaining a written consent, the General Partner
may require a response within a reasonable specified time, but not less than
fifteen (15) days, and failure to respond in such time period shall constitute a
consent that is consistent with the General Partner's recommendation with
respect to the proposal; provided, however, that an action shall become
effective at such time as requisite consents are received even if prior to such
specified time.
Section 14.3 Meetings of the Partners.
A. Meetings of the Partners may be called by the General Partner and shall
be called upon the receipt by the General Partner of a written request by a
Majority in Interest of the Limited Partners. The call shall state the nature of
the business to be transacted. Notice of any such meeting shall be given to all
Partners not less than seven (7) days nor more than thirty (30) days prior to
the date of such meeting. Partners may vote in person or by proxy at such
meeting. Whenever the Consent of Partners is permitted or required under this
Agreement, such vote or Consent may be given at a meeting of Partners or may be
given in accordance with the procedure prescribed in Section 14.3.B hereof.
B. Any action required or permitted to be taken at a meeting of the
Partners may be taken without a meeting if a written consent setting forth the
action so taken is signed by a majority of the Percentage Interests of the
Partners (or such other percentage as is expressly required by this Agreement
for the action in question). Such consent may be in one instrument or in several
instruments, and shall have the same force and effect as a vote of a majority of
the Percentage Interests of Partners (or such other percentage as is expressly
required by this Agreement). Such consent shall be filed with the General
Partner. An action so taken shall be deemed to have been taken at a meeting held
on the effective date so certified.
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C. Each Limited Partner may authorize any Person or Persons to act for it
by proxy on all matters in which a Limited Partner is entitled to participate,
including waiving notice of any meeting, or voting or participating at a
meeting. Every proxy must be signed by the Limited Partner or its
attorney-in-fact. No proxy shall be valid after the expiration of eleven (11)
months from the date thereof unless otherwise provided in the proxy (or there is
receipt of a proxy authorizing a later date). Every proxy shall be revocable at
the pleasure of the Limited Partner executing it, such revocation to be
effective upon the Partnership's receipt of written notice of such revocation
from the Limited Partner executing such proxy.
D. Each meeting of Partners shall be conducted by the General Partner or
such other Person as the General Partner may appoint pursuant to such rules for
the conduct of the meeting as the General Partner or such other Person deems
appropriate in its sole and absolute discretion. Without limitation, meetings of
Partners may be conducted in the same manner as meetings of the General
Partner's shareholders and may be held at the same time as, and as part of, the
meetings of the General Partner's shareholders.
ARTICLE 15
GENERAL PROVISIONS
Section 15.1 Addresses and Notice. Any notice, demand, request or report
required or permitted to be given or made to a Partner or Assignee under this
Agreement shall be in writing and shall be deemed given or made when delivered
in person or when sent by first class United States mail or by other means of
written communication (including by telecopy, facsimile, or commercial courier
service) to the Partner or Assignee at the address set forth in Exhibit A or
such other address of which the Partner shall notify the General Partner in
writing.
Section 15.2 Titles and Captions. All article or section titles or
captions in this Agreement are for convenience only. They shall not be deemed
part of this Agreement and in no way define, limit, extend or describe the scope
or intent of any provisions hereof. Except as specifically provided otherwise,
references to "Articles" or "Sections" are to Articles and Sections of this
Agreement.
Section 15.3 Pronouns and Plurals. Whenever the context may require, any
pronouns used in this Agreement shall include the corresponding masculine,
feminine or neuter forms, and the singular form of nouns, pronouns and verbs
shall include the plural and vice versa.
Section 15.4 Further Action. The parties shall execute and deliver all
documents, provide all information and take or refrain from taking action as may
be necessary or appropriate to achieve the purposes of this Agreement.
Section 15.5 Binding Effect. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their heirs, executors,
administrators, successors, legal representatives and permitted assigns.
Section 15.6 Waiver.
A. No failure by any party to insist upon the strict performance of any
covenant, duty, agreement or condition of this Agreement or to exercise any
right or remedy consequent upon a breach thereof shall constitute waiver of any
such breach or any other covenant, duty, agreement or condition.
B. The restrictions, conditions and other limitations on the rights and
benefits of the Limited Partners contained in this Agreement, and the duties,
covenants and other requirements of performance or notice by the Limited
Partners, are for the benefit of the Partnership and, except for an obligation
to pay money to the Partnership, may be waived or relinquished by the General
Partner, in its sole and absolute discretion, on behalf of the Partnership in
one or more instances from time and at any time; provided, however, that any
such waiver or relinquishment may not be made if it would have the effect of (i)
creating liability for any other Limited Partner, (ii) causing the Partnership
to cease to qualify as a limited partnership, (iii) reducing the amount of cash
otherwise distributable to the Limited Partners, (iv) resulting in the
classification of the Partnership as an association or publicly traded
partnership taxable as a corporation or (v) violating the
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Securities Act, the Exchange Act or any state "blue sky" or other securities
laws; provided, further, that any waiver relating to compliance with the
Ownership Limit or other restrictions in the Charter shall be made and shall be
effective only as provided in the Charter.
Section 15.7 Counterparts. This Agreement may be executed in counterparts,
all of which together shall constitute one agreement binding on all the parties
hereto, notwithstanding that all such parties are not signatories to the
original or the same counterpart. Each party shall become bound by this
Agreement immediately upon affixing its signature hereto.
Section 15.8 Applicable Law. This Agreement shall be construed and
enforced in accordance with and governed by the laws of the State of Delaware,
without regard to the principles of conflicts of law. In the event of a conflict
between any provision of this Agreement and any non-mandatory provision of the
Act, the provisions of this Agreement shall control and take precedence.
Section 15.9 Entire Agreement. This Agreement contains all of the
understandings and agreements between and among the Partners with respect to the
subject matter of this Agreement and the rights, interests and obligations of
the Partners with respect to the Partnership.
Section 15.10 Invalidity of Provisions. If any provision of this Agreement
is or becomes invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions contained herein shall
not be affected thereby.
Section 15.11 Limitation to Preserve REIT Status. Notwithstanding anything
else in this Agreement, to the extent that the amount paid, credited,
distributed or reimbursed by the Partnership to any REIT Partner or its
officers, directors, employees or agents, whether as a reimbursement, fee,
expense or indemnity (a "REIT Payment"), would constitute gross income to the
REIT Partner for purposes of Code Section 856(c)(2) or Code Section 856(c)(3),
then, notwithstanding any other provision of this Agreement, the amount of such
REIT Payments, as selected by the General Partner in its discretion from among
items of potential distribution, reimbursement, fees, expenses and indemnities,
shall be reduced for any Fiscal Year so that the REIT Payments, as so reduced,
for or with respect to such REIT Partner shall not exceed the lesser of:
(i) an amount equal to the excess, if any, of (a) four and nine-tenths
percent (4.9%) of the REIT Partner's total gross income (but excluding the
amount of any REIT Payments) for the Fiscal Year that is described in
subsections (A) through (H) of Code Section 856(c)(2) over (b) the amount
of gross income (within the meaning of Code Section 856(c)(2)) derived by
the REIT Partner from sources other than those described in subsections (A)
through (H) of Code Section 856(c)(2) (but not including the amount of any
REIT Payments); or
(ii) an amount equal to the excess, if any, of (a) twenty-four percent
(24%) of the REIT Partner's total gross income (but excluding the amount of
any REIT Payments) for the Fiscal Year that is described in subsections (A)
through (I) of Code Section 856(c)(3) over (b) the amount of gross income
(within the meaning of Code Section 856(c)(3)) derived by the REIT Partner
from sources other than those described in subsections (A) through (I) of
Code Section 856(c)(3) (but not including the amount of any REIT Payments);
provided, however, that REIT Payments in excess of the amounts set forth in
clauses (i) and (ii) above may be made if the General Partner, as a condition
precedent, obtains an opinion of tax counsel that the receipt of such excess
amounts shall not adversely affect the REIT Partner's ability to qualify as a
REIT. To the extent that REIT Payments may not be made in a Fiscal Year as a
consequence of the limitations set forth in this Section 15.11, such REIT
Payments shall carry over and shall be treated as arising in the following
Fiscal Year. The purpose of the limitations contained in this Section 15.11 is
to prevent any REIT Partner from failing to qualify as a REIT under the Code by
reason of such REIT Partner's share of items, including distributions,
reimbursements, fees, expenses or indemnities, receivable directly or indirectly
from the Partnership, and this Section 15.11 shall be interpreted and applied to
effectuate such purpose.
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Section 15.12 No Partition. No Partner nor any successor-in-interest to a
Partner shall have the right while this Agreement remains in effect to have any
property of the Partnership partitioned, or to file a complaint or institute any
proceeding at law or in equity to have such property of the Partnership
partitioned, and each Partner, on behalf of itself and its successors and
assigns hereby waives any such right. It is the intention of the Partners that
the rights of the parties hereto and their successors-in-interest to Partnership
property, as among themselves, shall be governed by the terms of this Agreement,
and that the rights of the Partners and their successors-in-interest shall be
subject to the limitations and restrictions as set forth in this Agreement.
Section 15.13 No Third-Party Rights Created Hereby. The provisions of this
Agreement are solely for the purpose of defining the interests of the Partners,
inter se; and no other person, firm or entity (i.e., a party who is not a
signatory hereto or a permitted successor to such signatory hereto) shall have
any right, power, title or interest by way of subrogation or otherwise, in and
to the rights, powers, title and provisions of this Agreement. No creditor or
other third party having dealings with the Partnership shall have the right to
enforce the right or obligation of any Partner to make Capital Contributions or
loans to the Partnership or to pursue any other right or remedy hereunder or at
law or in equity. None of the rights or obligations of the Partners herein set
forth to make Capital Contributions or loans to the Partnership shall be deemed
an asset of the Partnership for any purpose by any creditor or other third
party, nor may any such rights or obligations be sold, transferred or assigned
by the Partnership or pledged or encumbered by the Partnership to secure any
debt or other obligation of the Partnership or any of the Partners.
IN WITNESS WHEREOF, this Agreement has been executed as of the date first
written above.
PREVIOUS GENERAL PARTNER:
APARTMENT INVESTMENT AND
MANAGEMENT COMPANY
By: /s/ PETER KOMPANIEZ
----------------------------------
Name: Peter Kompaniez
Title: President
GENERAL PARTNER:
AIMCO-GP, INC.
By: /s/ PETER KOMPANIEZ
----------------------------------
Name: Peter Kompaniez
Title: President
SPECIAL LIMITED PARTNER:
AIMCO-LP, INC.
By: /s/ PETER KOMPANIEZ
----------------------------------
Name: Peter Kompaniez
Title: President
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LIMITED PARTNERS:
By: AIMCO-GP, INC.,
as attorney-in-fact
By: /s/ PETER KOMPANIEZ
----------------------------------
Name: Peter Kompaniez
Title: President
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
AIMCO
AIMCO's Charter limits the liability of AIMCO's directors and officers to
AIMCO and its stockholders to the fullest extent permitted from time to time by
Maryland law. Maryland law presently permits the liability of directors and
officers to a corporation or its stockholders for money damages to be limited,
except (i) to the extent that it is proved that the director or officer actually
received an improper benefit or profit in money, property or services for the
amount of the benefit or profit in money, property or services actually
received, or (ii) if a judgment or other final adjudication is entered in a
proceeding based on a finding that the director's or officer's action, or
failure to act, was the result of active and deliberate dishonesty and was
material to the cause of action adjudicated in the proceeding. This provision
does not limit the ability of AIMCO or its stockholders to obtain other relief,
such as an injunction or rescission.
AIMCO's Charter and Bylaws require AIMCO to indemnify its directors,
officers and certain other parties to the fullest extent permitted from time to
time by Maryland law. The MGCL permits a corporation to indemnify its directors,
officers and certain other parties against judgments, penalties, fines,
settlements and reasonable expenses actually incurred by them in connection with
any proceeding to which they may be made a party by reason of their service to
or at the request of the corporation, unless it is established that (i) the act
or omission of the indemnified party was material to the matter giving rise to
the proceeding and (x) was committed in bad faith or (y) was the result of
active and deliberate dishonesty, (ii) the indemnified party actually received
an improper personal benefit in money, property or services or (iii) in the case
of any criminal proceeding, the indemnified party had reasonable cause to
believe that the act or omission was unlawful. Indemnification may be made
against judgments, penalties, fines, settlements and reasonable expenses
actually incurred by the director or officer in connection with the proceeding;
provided, however, that if the proceeding is one by or in the right of the
corporation, indemnification may not be made with respect to any proceeding in
which the director or officer has been adjudged to be liable to the corporation.
In addition, a director or officer may not be indemnified with respect to any
proceeding charging improper personal benefit to the director or officer in
which the director or officer was adjudged to be liable on the basis that
personal benefit was improperly received. The termination of any proceeding by
conviction, or upon a plea of nolo contendere or its equivalent, or an entry of
any order of probation prior to judgment, creates a rebuttable presumption that
the director or officer did not meet the requisite standard of conduct required
for indemnification to be permitted. It is the position of the Commission that
indemnification of directors and officers for liabilities arising under the
Securities Act is against public policy and is unenforceable pursuant to Section
14 of the Securities Act.
AIMCO has entered into agreements with certain of its officers, pursuant to
which AIMCO has agreed to indemnify such officers to the fullest extent
permitted by applicable law.
THE AIMCO OPERATING PARTNERSHIP
The AIMCO Operating Partnership Agreement requires the AIMCO Operating
Partnership to indemnify its directors and officers (each an "Indemnitee") to
the fullest extent authorized by applicable law against any and all losses,
claims, damages, liabilities, joint or several, expenses (including, without
limitation, attorney's fees and other legal fees and expenses), judgments,
fines, settlements and other amounts arising from any and all claims, demands,
actions, suits or proceedings, civil, criminal, administrative or investigative,
that relate to the operations of the AIMCO Operating Partnership. Such
indemnification continues after the Indemnitee ceases to be a director or
officer. The right to indemnification includes the right to be paid by the AIMCO
Operating Partnership the expenses incurred in defending any proceeding in
advance of its final disposition upon the delivery of an undertaking by or on
behalf of the Indemnitee to repay all amounts
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advanced if a final judicial decision is rendered that such Indemnitee did not
meet the standard of conduct permitting indemnification under the AIMCO
Operating Partnership Agreement or applicable law.
The Partnership maintains insurance, at its expense, to protect against any
liability or loss, regardless of whether any director or officer is entitled to
indemnification under the AIMCO Operating Partnership Agreement or applicable
law.
ITEM 21. EXHIBITS.
(a)
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3.1 Charter of AIMCO. (Incorporated by reference to Exhibit 3.1
to AIMCO's Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 1998)
3.2 Form of Articles Supplementary relating to the Class K
Preferred Stock of AIMCO. (Incorporated by reference to
Exhibit 3.3 to AIMCO's Registration Statement on Form 8-A
filed on February 12, 1999)
3.3 Form of Articles Supplementary relating to the Class I
Preferred Stock of AIMCO. (Previously filed -- definitive
version to be filed or incorporated by reference prior to
the offering of Class I Preferred Stock)
3.4 Bylaws of AIMCO. (Incorporated by reference to Exhibit 3.2
to AIMCO's Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 1997)
3.5 Third Amended and Restated Agreement of Limited Partnership
of AIMCO Properties, L.P. (Incorporated by reference to
Exhibit 10.1 to Amendment No. 1 to AIMCO Properties,
L.P.'s Form 10 filed on December 16, 1998)
3.5.1 First Amendment to Third Amended and Restated Agreement of
Limited Partnership of AIMCO Properties, L.P.
(Incorporated by reference to Exhibit 10.9 to AIMCO's
Quarterly Report on Form 10-Q for the quarterly period
ended September 30, 1998)
3.5.2 Second Amendment to Third Amended and Restated Agreement of
Limited Partnership of AIMCO Properties, L.P.
(Incorporated by reference to Exhibit 10.1 to AIMCO
Properties, L.P. Current Report on Form 8-K filed on
February 11, 1999)
3.5.3 Third Amendment to Third Amended and Restated Agreement of
Limited Partnership of AIMCO Properties, L.P. (Previously
filed)
3.5.4 Fourth Amendment to Third Amended and Restated Agreement of
Limited Partnership of AIMCO Properties, L.P. (Previously
filed)
3.5.5 Fifth Amendment to Third Amended and Restated Agreement of
Limited Partnership of AIMCO Properties, L.P. (Previously
filed)
4.1 Specimen certificate for Class A Common Stock of AIMCO.
(Incorporated by reference to AIMCO Registration
Statement on Form 8-A filed on July 19, 1994)
4.2 Form of specimen certificate for Class I Preferred Stock of
AIMCO (Previously filed -- definitive version to be filed
or incorporated by reference prior to the offering of
Class I Preferred Stock)
4.3 Specimen certificate for Partnership Common Units of AIMCO
Properties, L.P. (Attached as Exhibit F to Exhibit 3.5)
4.4 Specimen certificate for Class Two Partnership Preferred
Units of AIMCO Properties, L.P. (Attached as Annex I to
Exhibit 3.5.4)
5.1 Opinion of Piper & Marbury L.L.P. regarding the validity of
the Class A Common Stock and Preferred Stock offered
hereby. (Filed herewith)
5.2 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP
regarding the validity of the Common OP Units and the
Preferred OP Units offered hereby. (Filed herewith)
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8.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP
regarding tax matters. (Previously filed)
8.1.1 Opinion of Altheimer & Gray, dated May 8, 1998. (Filed
herewith)
8.1.2 Opinion of Akin, Gump, Strauss & Feld, L.L.P., dated October
1, 1998. (Incorporated by reference to Exhibit 8.3 to the
Form S-4 Registration Statement, file no. 333-60663, of
AIMCO)
10.1 -- Amended and Restated Credit Agreement (Unsecured
Revolver-to-Term Facility), dated as of October 1, 1998,
among AIMCO Properties, L.P., Bank of America National
Trust and Savings Association, and BankBoston, N.A.
(Exhibit 10.1 to AIMCO's Current Report on Form 8-K,
dated October 1, 1998, is incorporated herein by this
reference)
10.2 -- First Amendment to Credit Agreement, dated as of November
6, 1998, by and among AIMCO Properties, L.P., the
financial institutions listed on the signature pages
thereof and Bank of America National Trust and Savings
Association (Exhibit 10.2 to AIMCO's Annual Report on
Form 10-K for the fiscal year 1998, is incorporated
herein by this reference)
10.3 -- Promissory Note, dated October 1, 1998, in the principal
amount of $65,000,000 issued by AIMCO Properties, L.P. to
Bank of America National Trust and Savings Association,
and BankBoston, N.A. (Exhibit 10.2 to AIMCO's Current
Report on Form 8-K, dated October 1, 1998, is
incorporated herein by this reference)
10.4 -- Promissory Note, dated October 1, 1998, in the principal
amount of $35,000,000 issued by AIMCO Properties, L.P. to
Bank of America National Trust and Savings Association,
and BankBoston, N.A. (Exhibit 10.3 to AIMCO's Current
Report on Form 8-K, dated October 1, 1998, is
incorporated herein by this reference)
10.5 -- Swing Line Promissory Note, dated October 1, 1998, in the
principal amount of $30,000,000, issued by AIMCO
Properties, L.P. to Bank of America National Trust and
Savings Association, and BankBoston, N.A. (Exhibit 10.4
to AIMCO's Current Report on Form 8-K, dated October 1,
1998, is incorporated herein by this reference)
10.6 -- Payment Guaranty of Non-Preferred Stock Subsidiaries,
dated as of October 1, 1998, by Apartment Investment and
Management Company, AIMCO Holdings QRS, Inc., AIMCO/OTC
QRS, Inc., AIMCO Holdings, L.P., AIMCO-GP, Inc.,
AIMCO-LP, Inc., AIMCO Properties Finance Corp., AIMCO
Somerset, Inc., Ambassador II, L.P., Ambassador X, L.P.,
Ambassador IV, Inc., Ambassador V, Inc., Ambassador
Florida Partners Inc. and A.J. Two, Inc. (Exhibit 10.5 to
AIMCO's Quarterly Report on Form 10-Q for the quarterly
period ending September 30, 1998, is incorporated herein
by this reference)
10.7 -- Payment Guaranty of Preferred Stock Subsidiaries, dated
as of October 1, 1998, by Property Asset Management
Services, Inc., Property Asset Management Services, L.P.,
NHP Management Company and Property Asset Management
Services-California, L.L.C. (Exhibit 10.6 to AIMCO's
Quarterly Report on Form 10-Q for the quarterly period
ending September 30, 1998, is incorporated herein by this
reference)
10.8 -- Payment Guaranty of Non-Preferred Stock Subsidiaries,
dated as of October 1, 1998, by CPF XIV/St. Charleston,
Inc., CPF XIV/Torrey Pines, Inc., CPF XIV/ Sun River,
Inc., CPF XIV/Lakeside Place, Inc., ConCap CCP/IV
Stratford Place Properties, Inc., ConCap CCP/IV River's
Edge Properties, Inc., PRA, Inc. and National Property
Investors, Inc. (Exhibit 10.7 to AIMCO's Quarterly Report
on Form 10-Q for the quarterly period ending September
30, 1998, is incorporated herein by this reference)
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10.9 -- Credit Agreement dated December 30, 1997, by and among
Insignia Properties, L.P., Lehman Commercial Paper Inc.,
as lending agent, First Union National Bank, as
administrative agent, and the lenders from time to party
thereto (Exhibit 10.8 to Form S-4 of Insignia Properties
Trust, filed May 28, 1998, is incorporated herein by this
reference)
10.10 -- Unconditional Guaranty, dated as of December 30, 1997,
made by Insignia Properties Trust in favor of First Union
National Bank (Exhibit 10.9 to Form S-4 of Insignia
Properties Trust, filed May 28, 1998, is incorporated
herein by this reference)
10.11 -- Purchase and Sale Agreement and Joint Escrow
Instructions, made and entered into as of August 22,
1997, by and between AIMCO Properties, L.P. and each of
the parties identified on Exhibit "A" attached thereto
(collectively, the "Winthrop Sellers") (Exhibit 99.3 to
AIMCO's Current Report on Form 8-K, dated October 15,
1997, is incorporated herein by this reference)
10.12 -- Letter Agreement, dated October 15, 1997 by and between
AIMCO Properties, L.P. and the Winthrop Sellers (Exhibit
99.6 to AIMCO's Current Report on Form 8-K, dated October
15, 1997, is incorporated herein by this reference)
10.13 -- Summary of Arrangement for Sale of Stock to Executive
Officers (Exhibit 10.104 to AIMCO's Annual Report on Form
10-K for the fiscal year 1996, is incorporated herein by
this reference)
10.14 -- Apartment Investment and Management Company 1997 Stock
Award and Incentive Plan (Annex A to AIMCO's Proxy
Statement for the Annual Meeting of Stockholders to be
held on April 24, 1997, is incorporated herein by this
reference)
10.15 -- Amendment No. 1 to the Apartment Investment and
Management Company 1997 Stock Award and Incentive Plan
(Annex A to AIMCO's Proxy Statement for Annual Meeting of
Stockholders to be held on May 8, 1998, is incorporated
herein by this reference)
10.16 -- Apartment Investment and Management Company 1998
Incentive Compensation Plan (Annex B to AIMCO's Proxy
Statement for Annual Meeting of Stockholders to be held
on May 8, 1998, is incorporated herein by this reference)
10.17 -- Employment Contract, executed on July 29, 1994, by and
between AIMCO Properties, L.P. and Peter Kompaniez
(Exhibit 10.44A to AIMCO's Annual Report on Form 10-K for
the fiscal year 1994, is incorporated herein by this
reference)
10.18 -- Real Estate Acquisition Agreement, dated as of May 22,
1997, by and among Apartment Investment and Management
Company, AIMCO Properties, L.P., Demeter Holdings
Corporation, Phemus Corporation, Capricorn Investors,
L.P., J. Roderick Heller, III and NHP Partners LLC
(Exhibit 2.1 to AIMCO's Current Report on Form 8-K, dated
June 3, 1997, is incorporated herein by this reference)
10.19 -- Contribution Agreement, dated as of January 31, 1998, by
and between Apartment Investment and Management Company
and Terry Considine and Peter K. Kompaniez (Exhibit 2.1
to AIMCO's Current Report on Form 8-K, dated January 31,
1998, is incorporated herein by this reference)
10.20 -- Amended and Restated Assignment and Assumption Agreement,
dated as of December 7, 1998, by and among Insignia
Properties, L.P. and AIMCO Properties, L.P. (Exhibit 10.1
to the Current Report on Form 8-K of Insignia Properties
Trust, dated February 11, 1999, is incorporated herein by
this reference)
10.21 -- Form of Restricted Stock Agreement (1997 Stock Award and
Incentive Plan) (Exhibit 10.11 to AIMCO's Quarterly
Report on Form 10-Q for the quarterly period ending
September 30, 1997, is incorporated herein by this
reference)
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10.22 -- Apartment Investment and Management Company Non-Qualified
Employee Stock Option Plan, adopted August 29, 1996
(Exhibit 10.8 to AIMCO's Quarterly Report on Form 10/Q-A
for the quarterly period ending September 30, 1996, is
incorporated herein by this reference)
10.23 -- Amended and Restated Apartment Investment and Management
Company Non-Qualified Employee Stock Option Plan (Annex B
to AIMCO's Proxy Statement for the Annual Meeting of
Stockholders to be held on April 24, 1997, is
incorporated herein by this reference)
10.24 -- Employment Contract executed on July 29, 1994 by and
between AIMCO Properties, LP and Terry Considine (Exhibit
10.44C to AIMCO's Annual Report on Form 10-K for the
fiscal year 1994, is incorporated herein by this
reference)
10.25 -- Employment Contract executed on July 29, 1994 by and
between AIMCO Properties, LP and Steven D. Ira (Exhibit
10.44D to AIMCO's Annual Report on Form 10-K for the
fiscal year 1994, is incorporated herein by this
reference)
10.26 -- The 1994 Stock Incentive Plan for Officers, Directors and
Key Employees of Ambassador Apartments, Inc., Ambassador
Apartments, L.P. and Subsidiaries (Exhibit 10.40 to
Ambassador Apartments, Inc. Annual Report on Form 10-K
for the fiscal year 1997, is incorporated herein by this
reference)
10.27 -- Amendment to the 1994 Stock Incentive Plan for Officers,
Directors and Key Employees of Ambassador Apartments,
Inc., Ambassador Apartments, L.P. and Subsidiaries
(Exhibit 10.41 to Ambassador Apartments, Inc. Annual
Report on Form 10-K for the fiscal year 1997, is
incorporated herein by this reference)
10.28 -- The 1996 Stock Incentive Plan for Officers, Directors and
Key Employees of Ambassador Apartments, Inc., Ambassador
Apartments, L.P. and Subsidiaries, as amended March 20,
1997 (Exhibit 10.42 to Ambassador Apartments, Inc. Annual
Report on Form 10-K for the fiscal year 1997, is
incorporated herein by this reference)
10.29 -- Insignia 1992 Stock Incentive Plan, as amended through
March 28, 1994 and November 13, 1995 (Exhibit 10.1 to
Insignia Financial Group, Inc. Annual Report on Form 10-K
for the fiscal year 1997, is incorporated herein by this
reference)
10.30 -- NHP Incorporated 1990 Stock Option Plan (Exhibit 10.9 to
NHP Incorporated Annual Report on Form 10-K for the
fiscal year 1995, is incorporated herein by this
reference)
10.31 -- NHP Incorporated 1995 Incentive Stock Option Plan
(Exhibit 10.10 to NHP Incorporated Annual Report on Form
10-K for the fiscal year 1995, is incorporated herein by
this reference)
10.32 -- Contribution and Management Agreement, dated as of June
15, 1998, by and between Apartment Investment and
Management Company and AIMCO Properties, L.P. (Exhibit
10.2 to Amendment No. 2 to Form 10 of AIMCO Properties,
L.P., filed October 28, 1998, is incorporate herein by
this reference)
10.33 -- Convertible Promissory Note from AIMCO Properties, L.P.
to AIMCO-LP Inc. in the amount of $149,500,000 (Exhibit
10.3 to Amendment No. 2 to Form 10 of AIMCO Properties,
L.P., filed October 28, 1998, is incorporated herein by
this reference)
12.1 Calculation of ratio of earnings to fixed charges.
(Previously filed)
12.2 Calculation of ratio of earnings to combined fixed charges
and preferred stock dividends. (Previously filed)
</TABLE>
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<PAGE> 597
<TABLE>
<C> <S>
21.1 Subsidiaries of the Registrants (Exhibit 21.1 to AIMCO's Annual Report on Form 10-K for
the year ended December 31, 1997 is incorporated herein by reference).
23.1 Consent of Ernst & Young LLP, Dallas, Texas. (Filed herewith)
23.2 Consent of Ernst & Young LLP, Chicago, Illinois. (Filed herewith)
23.3 Consent of Ernst & Young LLP, Greenville, South Carolina. (Filed herewith)
23.4 Consent of Ernst & Young LLP, Indianapolis, Indiana. (Filed herewith)
23.5 Consent of Arthur Andersen LLP. (Previously filed)
23.6 Consent of Piper & Marbury L.L.P. (Included in opinion filed as Exhibit 5.1).
23.7 Consent of Skadden, Arps, Slate, Meagher & Flom LLP (Included in opinion filed as Exhibit
5.2).
23.8 Consents of KPMG Peat Marwick LLP with respect to financial statements of the following
entities:
23.8.1 -- Baywood Partners, Ltd. (Previously filed)
23.8.2 -- Burgundy Court Associates, L.P. (Previously filed)
23.8.3 -- Catawba Club Associates, L.P. (Previously filed)
23.8.4 -- Georgetown of Columbus Associates, L.P. (Previously filed)
23.8.5 -- La Colina Partners, Ltd. (Previously filed)
23.8.6 -- Lake Eden Associates, L.P. (Previously filed)
23.8.7 -- Landmark Associates, Ltd. (Previously filed)
23.8.8 -- Northbrook Apartments, Ltd. (Previously filed)
23.8.9 -- Shaker Square, L.P. (Previously filed)
23.8.10 -- Thurber Manor Associates, Limited Partnership. (Previously filed)
23.8.11 -- Quail Run Associates, L.P. (Previously filed)
23.8.12 -- Sycamore Creek Associates, L.P. (Filed herewith)
23.9 Consent of Portock, Bye & Co. (Brampton Associates Partnership). (Previously filed)
23.10 Consents of Ernst & Young LLP, Greenville, South Carolina with respect to financial
statements of the following entities:
23.10.1 -- Rivercreek Apartments Limited Partnership. (Previously filed)
23.10.2 -- Shearson/Calmark Heritage Park II Ltd. (Previously filed)
23.10.3 -- Yorktown Towers Associates. (Previously filed)
23.10.4 -- Shannon Manor Apartments, a Limited Partnership. (Previously filed)
23.10.5 -- Woodmere Associates, L.P. (Previously filed)
23.10.6 -- Salem Arms of Augusta Limited Partnership. (Previously filed)
23.10.7 -- Coastal Commons Limited Partnership. (Previously filed)
23.10.8 -- Snowden Village Associates, L.P. (Previously filed)
23.10.9 -- Sharon Woods, L.P. (Previously filed)
23.10.10 -- Rivercrest Apartments, Limited. (Previously filed)
23.10.11 -- Angeles Income Properties, Ltd. II. (Previously filed)
23.10.12 -- Angeles Income Properties, Ltd. III. (Previously filed)
23.10.13 -- Angeles Income Properties, Ltd. IV. (Previously filed)
23.10.14 -- Angeles Income Properties, Ltd. 6. (Previously filed)
23.10.15 -- Angeles Opportunity Properties, Ltd. (Previously filed)
23.10.16 -- Angeles Partners VII. (Previously filed)
23.10.17 -- Angeles Partners VIII. (Previously filed)
23.10.18 -- Angeles Partners IX. (Previously filed)
</TABLE>
II-6
<PAGE> 598
<TABLE>
<C> <S>
23.10.19 -- Angeles Partners X. (Previously filed)
23.10.20 -- Angeles Partners XI. (Previously filed)
23.10.21 -- Angeles Partners XII. (Previously filed)
23.10.22 -- Angeles Partners XIV. (Previously filed)
23.10.23 -- Consolidated Capital Institutional Properties/2.
(Previously filed)
23.10.24 -- Consolidated Capital Institutional Properties/3.
(Previously filed)
23.10.25 -- Consolidated Capital Properties III. (Previously filed)
23.10.26 -- Consolidated Capital Properties IV. (Previously filed)
23.10.27 -- Consolidated Capital Properties V. (Previously filed)
23.10.28 -- Consolidated Capital Properties VI. (Previously filed)
23.10.29 -- Davidson Diversified Real Estate I, L.P. (Previously
filed)
23.10.30 -- Davidson Diversified Real Estate II, L.P. (Previously
filed)
23.10.31 -- Davidson Diversified Real Estate III, L.P. (Previously
filed)
23.10.32 -- Davidson Growth Plus, L.P. (Previously filed)
23.10.33 -- Davidson Income Real Estate, L.P. (Previously filed)
23.10.34 -- Investors First-Staged Equity. (Previously filed)
23.10.35 -- Johnstown/Consolidated Income Partners. (Previously
filed)
23.10.36 -- Multi-Benefit Realty Fund '87-1. (Previously filed)
23.10.37 -- Shelter Properties III. (Previously filed)
23.10.38 -- Shelter Properties VI. (Previously filed)
23.10.39 -- Shelter Properties VII Limited Partnership. (Previously
filed)
23.10.40 -- U.S. Realty Partners Limited Partnership. (Previously
filed)
23.10.41 -- Shelter Properties IV (Previously filed)
23.11 Consents of Deloitte & Touche.
23.11.1 -- HCW Pension Real Estate Fund Limited Partnership.
(Previously filed)
23.11.2 -- United Investors Growth Properties. (Previously filed)
23.11.3 -- United Investors Growth Properties II. (Previously filed)
23.11.4 -- United Investors Income Properties. (Previously filed)
23.11.5 -- Cedar Tree Investors Limited Partnership. (Previously
filed)
23.11.6 -- Wingfield Investors Limited Partnership. (Previously
filed)
23.12 Consents (1997 and 1996) of Reznick Fedder & Silverman
(Burnsville Apartments, LP (Minneapolis Associates II
Limited Partnership), Chestnut Hill Associates Limited
Partnership, DFW Apartment Investors Limited Partnership,
DFW Residential Investors Limited Partnership, Olde Mill
Investors Limited Partnership and Winthrop Apartment
Investors Limited Partnership). (Previously filed)
23.12.1 -- Riverside Park Associates L.P. (Previously filed)
23.12.2 -- Springhill Lake Investors Limited Partnership.
(Previously filed)
23.12.3 -- Texas Residential Investors Limited Partnership.
(Previously filed)
23.12.4 -- Park Towne Place Associates Limited Partnership
(Previously filed)
23.13 Consent of Barry S. Fishman & Associates (Ravensworth
Associates Limited Partnership) (Filed herewith)
23.14 Consents of Imowitz Koenig LLP with respect to financial
statements of the following entities:
23.14.1 -- Winthrop Apartment Investors Limited Partnership.
(Previously filed)
23.14.2 -- Winrock -- Houston Limited Partnership. (Previously
filed)
23.14.3 -- Century Properties Fund XVI. (Previously filed)
</TABLE>
II-7
<PAGE> 599
<TABLE>
<C> <S>
23.14.4 -- Century Properties Fund XVIII. (Previously filed)
23.14.5 -- Century Properties Fund XIX. (Previously filed)
23.14.6 -- Century Properties Growth Fund XXII. (Previously filed)
23.14.8 -- Fox Strategic Housing Income Partners. (Previously filed)
23.14.9 -- National Property Investors 8. (Previously filed)
23.14.10 -- Winthrop Growth Investors 1 Limited Partnership.
(Previously filed)
23.15.1 Consent of Pannell Kerr Forster PC (Drexel Burnham Lambert
Real Estate Associates II) (Previously filed).
23.16 Consent of Beers & Cutler PLLC (Realty Investment Apartment
Communities I) (Previously filed).
23.17 Consent of Ernst & Young, LLP, Denver, Colorado. (Previously
filed)
24.1 Power of Attorney for Apartment Investment and Management
Company. (Previously filed)
24.2 Power of Attorney for AIMCO Properties, L.P. (Previously
filed)
99.1 Physical Inspection Reports of Adjuster's International,
Inc. relating to Shelter Properties IV. (Incorporated by
reference from AIMCO Properties, L.P.'s Schedule 13E-3
filed on February 12, 1999)
99.2 Physical inspection report of Adjuster's International, Inc.
referred to in the Prospectus Supplement of Landmark
Associates, L.P. in the Section "Your Partnership -- Your
Partnership and its Property." (Previously filed)
99.3 Physical inspection report of Adjuster's International, Inc.
referred to in the Prospectus Supplement of Orchard Park
Apartments, Limited Partnership in the Section "Your
Partnership -- Your Partnership and its Property."
(Previously filed)
99.4 Physical inspection report of Adjuster's International, Inc.
referred to in the Prospectus Supplement of Park Towne
Associates Limited Partnership in the Section "Your
Partnership -- Your Partnership and its Property."
(Previously filed)
99.5 Physical inspection report of Adjuster's International, Inc.
referred to in the Prospectus Supplement of Salem Arms of
Augusta Limited Partnership in the Section "Your
Partnership -- Your Partnership and its Property."
(Previously filed)
99.6 Physical inspection report of Adjuster's International, Inc.
referred to in the Prospectus Supplement of Snowden
Village Associates, L.P. in the Section "Your
Partnership -- Your Partnership and its Property."
(Previously filed)
99.7 Physical inspection report of Adjuster's International, Inc.
referred to in the Prospectus Supplement of Sturbrook
Investors, Ltd. in the Section "Your Partnership -- Your
Partnership and its Property." (Previously filed)
99.8 Physical inspection report of Adjuster's International, Inc.
referred to in the Prospectus Supplement of Sycamore
Creek Associates, L.P. in the Section "Your
Partnership -- Your Partnership and its Property."
(Previously filed)
99.9 Summary of Appraisal for Timber Ridge Apartments (Sharon
Woods, L.P.) (Previously filed)
99.10 Summary of Appraisal for Landmark Woods Apartments (Landmark
Associates, Ltd.) (Previously filed)
99.11 Summary of Appraisal for Scotch Pines East Apartments
(CallMart Fort Collins Ltd.) (Previously filed)
</TABLE>
II-8
<PAGE> 600
<TABLE>
<C> <S>
99.12 Summary of Appraisal of Sycamore Creek Apartments, (Sycamore
Creek Associates, L.P.) (Previously filed)
99.13 Summary of Appraisal of Buccaneer Trace Apartments
(Buccaneer Trace Limited Partnership) (Previously filed)
99.14 Summaries of appraisals of Shelter Properties IV.
(Incorporated by reference to Exhibit (z)(I) to the Form
14D-1 for Shelter Properties IV filed by Cooper River
Properties, L.L.C. on July 21, 1998)
99.15 Form of Letter of Transmittal (Filed herewith).
99.16 Agreement re disclosure of long-term debt instruments (Filed
herewith)
</TABLE>
- ---------------
Schedules and supplemental materials to the exhibits have been omitted but
will be provided to the Securities and Exchange Commission upon request.
(b) Financial Statement Schedules
Not Applicable.
(c) Report, opinion or appraisal
(i)See Appendix A to each Prospectus Supplement for the opinions of Robert
A. Stanger & Company, Inc.
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrants hereby undertake:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933, as amended;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, as amended, each such post-effective amendment
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrants hereby undertake that, for purposes of
determining any liability under the Securities Act of 1933, as amended, each
filing of the registrants' annual reports pursuant to Section 13(a) or 15(d) of
the Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated
II-9
<PAGE> 601
by reference in the registration statement shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
II-10
<PAGE> 602
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended, may be permitted to directors, officers and controlling
persons of the registrants pursuant to the foregoing provisions, or otherwise,
the registrants have been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrants of expenses incurred
or paid by a director, officer or controlling person of the registrants in the
successful defense of any action, suit, or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrants will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(d) The undersigned registrants hereby undertake to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(e) The undersigned registrants hereby undertake to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(f) The undersigned registrants hereby undertake to not issue securities
under this registration statement in order to effect any "roll-up transaction"
(as such term is defined paragraph (c) of Item 901 of Regulation S-K).
Furthermore, the undersigned registrants hereby undertake to supply by means of
a post-effective amendment all information concerning an offer to purchase
partnership interests in exchange for securities issued under this registration
statement, prior to commencing such an offer, if pursuant to the provisions of
subparagraph (iv), (vii) or (viii) of paragraph (c)(2) of Item 901 of Regulation
S-K, such transaction would be excluded from the definition of a "roll-up
transaction."
II-11
<PAGE> 603
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Apartment
Investment and Management Company has duly caused this Amendment No. 11 to the
Registration Statement on Form S-4 to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Denver, State of
Colorado, on the 29th day of March, 1999.
APARTMENT INVESTMENT AND
MANAGEMENT COMPANY
By: /s/ PETER K. KOMPANIEZ
----------------------------------
Peter K. Kompaniez,
Vice Chairman and President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 11 to the Registration Statement on Form S-4 has been signed below by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ TERRY CONSIDINE* Chairman and Chief Executive March 29, 1999
- ----------------------------------------------------- Officer
Terry Considine
/s/ PETER K. KOMPANIEZ Vice Chairman and President March 29, 1999
- -----------------------------------------------------
Peter K. Kompaniez
/s/ TROY D. BUTTS* Senior Vice President and March 29, 1999
- ----------------------------------------------------- Chief Financial Officer
Troy D. Butts
/s/ RICHARD S. ELLWOOD* Director March 29, 1999
- -----------------------------------------------------
Richard S. Ellwood
/s/ J. LANDIS MARTIN* Director March 29, 1999
- -----------------------------------------------------
J. Landis Martin
/s/ THOMAS L. RHODES* Director March 29, 1999
- -----------------------------------------------------
Thomas L. Rhodes
/s/ JOHN D. SMITH* Director March 29, 1999
- -----------------------------------------------------
John D. Smith
*By: /s/ PETER K. KOMPANIEZ
------------------------------------------------
Peter K. Kompaniez, as Attorney-in-Fact
for each of the persons indicated
</TABLE>
<PAGE> 604
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, AIMCO
Properties, L.P. has duly caused this Amendment No. 11 to the Registration
Statement on Form S-4 to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Denver, State of Colorado, on the 29th day of
March, 1999.
AIMCO PROPERTIES, L.P.
By: AIMCO-GP, INC.
its General Partner
By: /s/ PETER K. KOMPANIEZ
----------------------------------
Peter K. Kompaniez,
Vice Chairman and President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 11 to the Registration Statement on Form S-4 has been signed below by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ TERRY CONSIDINE* Chairman and Chief March 29, 1999
- ----------------------------------------------------- Executive Officer
Terry Considine
/s/ PETER K. KOMPANIEZ Vice Chairman and President March 29, 1999
- -----------------------------------------------------
Peter K. Kompaniez
/s/ TROY D. BUTTS* Senior Vice President and March 29, 1999
- ----------------------------------------------------- Chief Financial Officer
Troy D. Butts
*By: /s/ PETER K. KOMPANIEZ
------------------------------------------------
Peter K. Kompaniez, as Attorney-in-Fact for
each of the persons indicated
</TABLE>
<PAGE> 605
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
3.1 Charter of AIMCO. (Incorporated by reference to Exhibit 3.1
to AIMCO's Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 1998)
3.2 Form of Articles Supplementary relating to the Class K
Preferred Stock of AIMCO. (Incorporated by reference to
Exhibit 3.3 to AIMCO's Registration Statement on Form 8-A
filed on February 12, 1999)
3.3 Form of Articles Supplementary relating to the Class I
Preferred Stock of AIMCO. (Previously filed -- definitive
version to be filed or incorporated by reference prior to
the offering of Class I Preferred Stock)
3.4 Bylaws of AIMCO. (Incorporated by reference to Exhibit 3.2
to AIMCO's Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 1997)
3.5 Third Amended and Restated Agreement of Limited Partnership
of AIMCO Properties, L.P. (Incorporated by reference to
Exhibit 10.1 to Amendment No. 1 to AIMCO Properties,
L.P.'s Form 10 filed on December 16, 1998)
3.5.1 First Amendment to Third Amended and Restated Agreement of
Limited Partnership of AIMCO Properties, L.P.
(Incorporated by reference to Exhibit 10.9 to AIMCO's
Quarterly Report on Form 10-Q for the quarterly period
ended September 30, 1998)
3.5.2 Second Amendment to Third Amended and Restated Agreement of
Limited Partnership of AIMCO Properties, L.P.
(Incorporated by reference to Exhibit 10.1 to AIMCO
Properties, L.P. Current Report on Form 8-K filed on
February 11, 1999)
3.5.3 Third Amendment to Third Amended and Restated Agreement of
Limited Partnership of AIMCO Properties, L.P. (Previously
filed)
3.5.4 Fourth Amendment to Third Amended and Restated Agreement of
Limited Partnership of AIMCO Properties, L.P. (Previously
filed)
3.5.5 Fifth Amendment to Third Amended and Restated Agreement of
Limited Partnership of AIMCO Properties, L.P. (Previously
filed)
4.1 Specimen certificate for Class A Common Stock of AIMCO.
(Incorporated by reference to AIMCO Registration
Statement on Form 8-A filed on July 19, 1994)
4.2 Form of specimen certificate for Class I Preferred Stock of
AIMCO (Previously filed -- definitive version to be filed
or incorporated by reference prior to the offering of
Class I Preferred Stock)
4.3 Specimen certificate for Partnership Common Units of AIMCO
Properties, L.P. (Attached as Exhibit F to Exhibit 3.5)
4.4 Specimen certificate for Class Two Partnership Preferred
Units of AIMCO Properties, L.P. (Attached as Annex I to
Exhibit 3.5.4)
5.1 Opinion of Piper & Marbury L.L.P. regarding the validity of
the Class A Common Stock and Preferred Stock offered
hereby. (Filed herewith)
5.2 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP
regarding the validity of the Common OP Units and the
Preferred OP Units offered hereby. (Filed herewith)
8.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP
regarding tax matters. (Previously filed)
8.1.1 Opinion of Altheimer & Gray, dated May 8, 1998. (Filed
herewith)
8.1.2 Opinion of Akin, Gump, Strauss & Feld, L.L.P., dated October
1, 1998. (Incorporated by reference to Exhibit 8.3 to the
Form S-4 Registration Statement, file no. 333-60663, of
AIMCO)
</TABLE>
<PAGE> 606
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.1 -- Amended and Restated Credit Agreement (Unsecured
Revolver-to-Term Facility), dated as of October 1, 1998,
among AIMCO Properties, L.P., Bank of America National
Trust and Savings Association, and BankBoston, N.A.
(Exhibit 10.1 to AIMCO's Current Report on Form 8-K,
dated October 1, 1998, is incorporated herein by this
reference)
10.2 -- First Amendment to Credit Agreement, dated as of November
6, 1998, by and among AIMCO Properties, L.P., the
financial institutions listed on the signature pages
thereof and Bank of America National Trust and Savings
Association (Exhibit 10.2 to AIMCO's Annual Report on
Form 10-K for the fiscal year 1998, is incorporated
herein by this reference)
10.3 -- Promissory Note, dated October 1, 1998, in the principal
amount of $65,000,000 issued by AIMCO Properties, L.P. to
Bank of America National Trust and Savings Association,
and BankBoston, N.A. (Exhibit 10.2 to AIMCO's Current
Report on Form 8-K, dated October 1, 1998, is
incorporated herein by this reference)
10.4 -- Promissory Note, dated October 1, 1998, in the principal
amount of $35,000,000 issued by AIMCO Properties, L.P. to
Bank of America National Trust and Savings Association,
and BankBoston, N.A. (Exhibit 10.3 to AIMCO's Current
Report on Form 8-K, dated October 1, 1998, is
incorporated herein by this reference)
10.5 -- Swing Line Promissory Note, dated October 1, 1998, in the
principal amount of $30,000,000, issued by AIMCO
Properties, L.P. to Bank of America National Trust and
Savings Association, and BankBoston, N.A. (Exhibit 10.4
to AIMCO's Current Report on Form 8-K, dated October 1,
1998, is incorporated herein by this reference)
10.6 -- Payment Guaranty of Non-Preferred Stock Subsidiaries,
dated as of October 1, 1998, by Apartment Investment and
Management Company, AIMCO Holdings QRS, Inc., AIMCO/OTC
QRS, Inc., AIMCO Holdings, L.P., AIMCO-GP, Inc.,
AIMCO-LP, Inc., AIMCO Properties Finance Corp., AIMCO
Somerset, Inc., Ambassador II, L.P., Ambassador X, L.P.,
Ambassador IV, Inc., Ambassador V, Inc., Ambassador
Florida Partners Inc. and A.J. Two, Inc. (Exhibit 10.5 to
AIMCO's Quarterly Report on Form 10-Q for the quarterly
period ending September 30, 1998, is incorporated herein
by this reference)
10.7 -- Payment Guaranty of Preferred Stock Subsidiaries, dated
as of October 1, 1998, by Property Asset Management
Services, Inc., Property Asset Management Services, L.P.,
NHP Management Company and Property Asset Management
Services-California, L.L.C. (Exhibit 10.6 to AIMCO's
Quarterly Report on Form 10-Q for the quarterly period
ending September 30, 1998, is incorporated herein by this
reference)
10.8 -- Payment Guaranty of Non-Preferred Stock Subsidiaries,
dated as of October 1, 1998, by CPF XIV/St. Charleston,
Inc., CPF XIV/Torrey Pines, Inc., CPF XIV/ Sun River,
Inc., CPF XIV/Lakeside Place, Inc., ConCap CCP/IV
Stratford Place Properties, Inc., ConCap CCP/IV River's
Edge Properties, Inc., PRA, Inc. and National Property
Investors, Inc. (Exhibit 10.7 to AIMCO's Quarterly Report
on Form 10-Q for the quarterly period ending September
30, 1998, is incorporated herein by this reference)
10.9 -- Credit Agreement dated December 30, 1997, by and among
Insignia Properties, L.P., Lehman Commercial Paper Inc.,
as lending agent, First Union National Bank, as
administrative agent, and the lenders from time to party
thereto (Exhibit 10.8 to Form S-4 of Insignia Properties
Trust, filed May 28, 1998, is incorporated herein by this
reference)
</TABLE>
<PAGE> 607
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.10 -- Unconditional Guaranty, dated as of December 30, 1997,
made by Insignia Properties Trust in favor of First Union
National Bank (Exhibit 10.9 to Form S-4 of Insignia
Properties Trust, filed May 28, 1998, is incorporated
herein by this reference)
10.11 -- Purchase and Sale Agreement and Joint Escrow
Instructions, made and entered into as of August 22,
1997, by and between AIMCO Properties, L.P. and each of
the parties identified on Exhibit "A" attached thereto
(collectively, the "Winthrop Sellers") (Exhibit 99.3 to
AIMCO's Current Report on Form 8-K, dated October 15,
1997, is incorporated herein by this reference)
10.12 -- Letter Agreement, dated October 15, 1997 by and between
AIMCO Properties, L.P. and the Winthrop Sellers (Exhibit
99.6 to AIMCO's Current Report on Form 8-K, dated October
15, 1997, is incorporated herein by this reference)
10.13 -- Summary of Arrangement for Sale of Stock to Executive
Officers (Exhibit 10.104 to AIMCO's Annual Report on Form
10-K for the fiscal year 1996, is incorporated herein by
this reference)
10.14 -- Apartment Investment and Management Company 1997 Stock
Award and Incentive Plan (Annex A to AIMCO's Proxy
Statement for the Annual Meeting of Stockholders to be
held on April 24, 1997, is incorporated herein by this
reference)
10.15 -- Amendment No. 1 to the Apartment Investment and
Management Company 1997 Stock Award and Incentive Plan
(Annex A to AIMCO's Proxy Statement for Annual Meeting of
Stockholders to be held on May 8, 1998, is incorporated
herein by this reference)
10.16 -- Apartment Investment and Management Company 1998
Incentive Compensation Plan (Annex B to AIMCO's Proxy
Statement for Annual Meeting of Stockholders to be held
on May 8, 1998, is incorporated herein by this reference)
10.17 -- Employment Contract, executed on July 29, 1994, by and
between AIMCO Properties, L.P. and Peter Kompaniez
(Exhibit 10.44A to AIMCO's Annual Report on Form 10-K for
the fiscal year 1994, is incorporated herein by this
reference)
10.18 -- Real Estate Acquisition Agreement, dated as of May 22,
1997, by and among Apartment Investment and Management
Company, AIMCO Properties, L.P., Demeter Holdings
Corporation, Phemus Corporation, Capricorn Investors,
L.P., J. Roderick Heller, III and NHP Partners LLC
(Exhibit 2.1 to AIMCO's Current Report on Form 8-K, dated
June 3, 1997, is incorporated herein by this reference)
10.19 -- Contribution Agreement, dated as of January 31, 1998, by
and between Apartment Investment and Management Company
and Terry Considine and Peter K. Kompaniez (Exhibit 2.1
to AIMCO's Current Report on Form 8-K, dated January 31,
1998, is incorporated herein by this reference)
10.20 -- Amended and Restated Assignment and Assumption Agreement,
dated as of December 7, 1998, by and among Insignia
Properties, L.P. and AIMCO Properties, L.P. (Exhibit 10.1
to the Current Report on Form 8-K of Insignia Properties
Trust, dated February 11, 1999, is incorporated herein by
this reference)
10.21 -- Form of Restricted Stock Agreement (1997 Stock Award and
Incentive Plan) (Exhibit 10.11 to AIMCO's Quarterly
Report on Form 10-Q for the quarterly period ending
September 30, 1997, is incorporated herein by this
reference)
</TABLE>
<PAGE> 608
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.22 -- Apartment Investment and Management Company Non-Qualified
Employee Stock Option Plan, adopted August 29, 1996
(Exhibit 10.8 to AIMCO's Quarterly Report on Form 10/Q-A
for the quarterly period ending September 30, 1996, is
incorporated herein by this reference)
10.23 -- Amended and Restated Apartment Investment and Management
Company Non-Qualified Employee Stock Option Plan (Annex B
to AIMCO's Proxy Statement for the Annual Meeting of
Stockholders to be held on April 24, 1997, is
incorporated herein by this reference)
10.24 -- Employment Contract executed on July 29, 1994 by and
between AIMCO Properties, LP and Terry Considine (Exhibit
10.44C to AIMCO's Annual Report on Form 10-K for the
fiscal year 1994, is incorporated herein by this
reference)
10.25 -- Employment Contract executed on July 29, 1994 by and
between AIMCO Properties, LP and Steven D. Ira (Exhibit
10.44D to AIMCO's Annual Report on Form 10-K for the
fiscal year 1994, is incorporated herein by this
reference)
10.26 -- The 1994 Stock Incentive Plan for Officers, Directors and
Key Employees of Ambassador Apartments, Inc., Ambassador
Apartments, L.P. and Subsidiaries (Exhibit 10.40 to
Ambassador Apartments, Inc. Annual Report on Form 10-K
for the fiscal year 1997, is incorporated herein by this
reference)
10.27 -- Amendment to the 1994 Stock Incentive Plan for Officers,
Directors and Key Employees of Ambassador Apartments,
Inc., Ambassador Apartments, L.P. and Subsidiaries
(Exhibit 10.41 to Ambassador Apartments, Inc. Annual
Report on Form 10-K for the fiscal year 1997, is
incorporated herein by this reference)
10.28 -- The 1996 Stock Incentive Plan for Officers, Directors and
Key Employees of Ambassador Apartments, Inc., Ambassador
Apartments, L.P. and Subsidiaries, as amended March 20,
1997 (Exhibit 10.42 to Ambassador Apartments, Inc. Annual
Report on Form 10-K for the fiscal year 1997, is
incorporated herein by this reference)
10.29 -- Insignia 1992 Stock Incentive Plan, as amended through
March 28, 1994 and November 13, 1995 (Exhibit 10.1 to
Insignia Financial Group, Inc. Annual Report on Form 10-K
for the fiscal year 1997, is incorporated herein by this
reference)
10.30 -- NHP Incorporated 1990 Stock Option Plan (Exhibit 10.9 to
NHP Incorporated Annual Report on Form 10-K for the
fiscal year 1995, is incorporated herein by this
reference)
10.31 -- NHP Incorporated 1995 Incentive Stock Option Plan
(Exhibit 10.10 to NHP Incorporated Annual Report on Form
10-K for the fiscal year 1995, is incorporated herein by
this reference)
10.32 -- Contribution and Management Agreement, dated as of June
15, 1998, by and between Apartment Investment and
Management Company and AIMCO Properties, L.P. (Exhibit
10.2 to Amendment No. 2 to Form 10 of AIMCO Properties,
L.P., filed October 28, 1998, is incorporate herein by
this reference)
10.33 -- Convertible Promissory Note from AIMCO Properties, L.P.
to AIMCO-LP Inc. in the amount of $149,500,000 (Exhibit
10.3 to Amendment No. 2 to Form 10 of AIMCO Properties,
L.P., filed October 28, 1998, is incorporated herein by
this reference)
12.1 Calculation of ratio of earnings to fixed charges.
(Previously filed)
12.2 Calculation of ratio of earnings to combined fixed charges
and preferred stock dividends. (Previously filed)
</TABLE>
<PAGE> 609
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
21.1 Subsidiaries of the Registrants (Exhibit 21.1 to AIMCO's
Annual Report on Form 10-K for the year ended December
31, 1997 is incorporated herein by reference).
23.1 Consent of Ernst & Young LLP, Dallas, Texas. (Filed
herewith)
23.2 Consent of Ernst & Young LLP, Chicago, Illinois. (Filed
herewith)
23.3 Consent of Ernst & Young LLP, Greenville, South Carolina.
(Filed herewith)
23.4 Consent of Ernst & Young LLP, Indianapolis, Indiana. (Filed
herewith)
23.5 Consent of Arthur Andersen LLP. (Previously filed)
23.6 Consent of Piper & Marbury L.L.P. (Included in opinion filed
as Exhibit 5.1).
23.7 Consent of Skadden, Arps, Slate, Meagher & Flom LLP
(Included in opinion filed as Exhibit 5.2).
23.8 Consents of KPMG Peat Marwick LLP with respect to financial
statements of the following entities:
23.8.1 -- Baywood Partners, Ltd. (Previously filed)
23.8.2 -- Burgundy Court Associates, L.P. (Previously filed)
23.8.3 -- Catawba Club Associates, L.P. (Previously filed)
23.8.4 -- Georgetown of Columbus Associates, L.P. (Previously
filed)
23.8.5 -- La Colina Partners, Ltd. (Previously filed)
23.8.6 -- Lake Eden Associates, L.P. (Previously filed)
23.8.7 -- Landmark Associates, Ltd. (Previously filed)
23.8.8 -- Northbrook Apartments, Ltd. (Previously filed)
23.8.9 -- Shaker Square, L.P. (Previously filed)
23.8.10 -- Thurber Manor Associates, Limited Partnership.
(Previously filed)
23.8.11 -- Quail Run Associates, L.P. (Previously filed)
23.8.12 -- Sycamore Creek Associates, L.P. (Filed herewith)
23.9 Consent of Portock, Bye & Co. (Brampton Associates
Partnership). (Previously filed)
23.10 Consents of Ernst & Young LLP, Greenville, South Carolina
with respect to financial statements of the following
entities:
23.10.1 -- Rivercreek Apartments Limited Partnership. (Previously
filed)
23.10.2 -- Shearson/Calmark Heritage Park II Ltd. (Previously filed)
23.10.3 -- Yorktown Towers Associates. (Previously filed)
23.10.4 -- Shannon Manor Apartments, a Limited Partnership.
(Previously filed)
23.10.5 -- Woodmere Associates, L.P. (Previously filed)
23.10.6 -- Salem Arms of Augusta Limited Partnership. (Previously
filed)
23.10.7 -- Coastal Commons Limited Partnership. (Previously filed)
23.10.8 -- Snowden Village Associates, L.P. (Previously filed)
23.10.9 -- Sharon Woods, L.P. (Previously filed)
23.10.10 -- Rivercrest Apartments, Limited. (Previously filed)
23.10.11 -- Angeles Income Properties, Ltd. II. (Previously filed)
23.10.12 -- Angeles Income Properties, Ltd. III. (Previously filed)
23.10.13 -- Angeles Income Properties, Ltd. IV. (Previously filed)
23.10.14 -- Angeles Income Properties, Ltd. 6. (Previously filed)
23.10.15 -- Angeles Opportunity Properties, Ltd. (Previously filed)
23.10.16 -- Angeles Partners VII. (Previously filed)
23.10.17 -- Angeles Partners VIII. (Previously filed)
23.10.18 -- Angeles Partners IX. (Previously filed)
</TABLE>
<PAGE> 610
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
23.10.19 -- Angeles Partners X. (Previously filed)
23.10.20 -- Angeles Partners XI. (Previously filed)
23.10.21 -- Angeles Partners XII. (Previously filed)
23.10.22 -- Angeles Partners XIV. (Previously filed)
23.10.23 -- Consolidated Capital Institutional Properties/2.
(Previously filed)
23.10.24 -- Consolidated Capital Institutional Properties/3.
(Previously filed)
23.10.25 -- Consolidated Capital Properties III. (Previously filed)
23.10.26 -- Consolidated Capital Properties IV. (Previously filed)
23.10.27 -- Consolidated Capital Properties V. (Previously filed)
23.10.28 -- Consolidated Capital Properties VI. (Previously filed)
23.10.29 -- Davidson Diversified Real Estate I, L.P. (Previously
filed)
23.10.30 -- Davidson Diversified Real Estate II, L.P. (Previously
filed)
23.10.31 -- Davidson Diversified Real Estate III, L.P. (Previously
filed)
23.10.32 -- Davidson Growth Plus, L.P. (Previously filed)
23.10.33 -- Davidson Income Real Estate, L.P. (Previously filed)
23.10.34 -- Investors First-Staged Equity. (Previously filed)
23.10.35 -- Johnstown/Consolidated Income Partners. (Previously
filed)
23.10.36 -- Multi-Benefit Realty Fund '87-1. (Previously filed)
23.10.37 -- Shelter Properties III. (Previously filed)
23.10.38 -- Shelter Properties VI. (Previously filed)
23.10.39 -- Shelter Properties VII Limited Partnership. (Previously
filed)
23.10.40 -- U.S. Realty Partners Limited Partnership. (Previously
filed)
23.10.41 -- Shelter Properties IV (Previously filed)
23.11 Consents of Deloitte & Touche.
23.11.1 -- HCW Pension Real Estate Fund Limited Partnership.
(Previously filed)
23.11.2 -- United Investors Growth Properties. (Previously filed)
23.11.3 -- United Investors Growth Properties II. (Previously filed)
23.11.4 -- United Investors Income Properties. (Previously filed)
23.11.5 -- Cedar Tree Investors Limited Partnership. (Previously
filed)
23.11.6 -- Wingfield Investors Limited Partnership. (Previously
filed)
23.12 Consents (1997 and 1996) of Reznick Fedder & Silverman
(Burnsville Apartments, LP (Minneapolis Associates II
Limited Partnership), Chestnut Hill Associates Limited
Partnership, DFW Apartment Investors Limited Partnership,
DFW Residential Investors Limited Partnership, Olde Mill
Investors Limited Partnership and Winthrop Apartment
Investors Limited Partnership). (Previously filed)
23.12.1 -- Riverside Park Associates L.P. (Previously filed)
23.12.2 -- Springhill Lake Investors Limited Partnership.
(Previously filed)
23.12.3 -- Texas Residential Investors Limited Partnership.
(Previously filed)
23.12.4 -- Park Towne Place Associates Limited Partnership
(Previously filed)
23.13 Consent of Barry S. Fishman & Associates (Ravensworth
Associates Limited Partnership) (Filed herewith)
23.14 Consents of Imowitz Koenig LLP with respect to financial
statements of the following entities:
23.14.1 -- Winthrop Apartment Investors Limited Partnership.
(Previously filed)
23.14.2 -- Winrock -- Houston Limited Partnership. (Previously
filed)
23.14.3 -- Century Properties Fund XVI. (Previously filed)
</TABLE>
<PAGE> 611
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
23.14.4 -- Century Properties Fund XVIII. (Previously filed)
23.14.5 -- Century Properties Fund XIX. (Previously filed)
23.14.6 -- Century Properties Growth Fund XXII. (Previously filed)
23.14.8 -- Fox Strategic Housing Income Partners. (Previously filed)
23.14.9 -- National Property Investors 8. (Previously filed)
23.14.10 -- Winthrop Growth Investors 1 Limited Partnership.
(Previously filed)
23.15.1 Consent of Pannell Kerr Forster PC (Drexel Burnham Lambert
Real Estate Associates II) (Previously filed).
23.16 Consent of Beers & Cutler PLLC (Realty Investment Apartment
Communities I) (Previously filed).
23.17 Consent of Ernst & Young, LLP, Denver, Colorado. (Previously
filed)
24.1 Power of Attorney for Apartment Investment and Management
Company. (Previously filed)
24.2 Power of Attorney for AIMCO Properties, L.P. (Previously
filed)
99.1 Physical Inspection Reports of Adjuster's International,
Inc. relating to Shelter Properties IV. (Incorporated by
reference from AIMCO Properties, L.P.'s Schedule 13E-3
filed on February 12, 1999)
99.2 Physical inspection report of Adjuster's International, Inc.
referred to in the Prospectus Supplement of Landmark
Associates, L.P. in the Section "Your Partnership -- Your
Partnership and its Property." (Previously filed)
99.3 Physical inspection report of Adjuster's International, Inc.
referred to in the Prospectus Supplement of Orchard Park
Apartments, Limited Partnership in the Section "Your
Partnership -- Your Partnership and its Property."
(Previously filed)
99.4 Physical inspection report of Adjuster's International, Inc.
referred to in the Prospectus Supplement of Park Towne
Associates Limited Partnership in the Section "Your
Partnership -- Your Partnership and its Property."
(Previously filed)
99.5 Physical inspection report of Adjuster's International, Inc.
referred to in the Prospectus Supplement of Salem Arms of
Augusta Limited Partnership in the Section "Your
Partnership -- Your Partnership and its Property."
(Previously filed)
99.6 Physical inspection report of Adjuster's International, Inc.
referred to in the Prospectus Supplement of Snowden
Village Associates, L.P. in the Section "Your
Partnership -- Your Partnership and its Property."
(Previously filed)
99.7 Physical inspection report of Adjuster's International, Inc.
referred to in the Prospectus Supplement of Sturbrook
Investors, Ltd. in the Section "Your Partnership -- Your
Partnership and its Property." (Previously filed)
99.8 Physical inspection report of Adjuster's International, Inc.
referred to in the Prospectus Supplement of Sycamore
Creek Associates, L.P. in the Section "Your
Partnership -- Your Partnership and its Property."
(Previously filed)
99.9 Summary of Appraisal for Timber Ridge Apartments (Sharon
Woods, L.P.) (Previously filed)
99.10 Summary of Appraisal for Landmark Woods Apartments (Landmark
Associates, Ltd.) (Previously filed)
99.11 Summary of Appraisal for Scotch Pines East Apartments
(CallMart Fort Collins Ltd.) (Previously filed)
</TABLE>
<PAGE> 612
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
99.12 Summary of Appraisal of Sycamore Creek Apartments, (Sycamore
Creek Associates, L.P.) (Previously filed)
99.13 Summary of Appraisal of Buccaneer Trace Apartments
(Buccaneer Trace Limited Partnership) (Previously filed)
99.14 Summaries of appraisals of Shelter Properties IV.
(Incorporated by reference to Exhibit (z)(I) to the Form
14D-1 for Shelter Properties IV filed by Cooper River
Properties, L.L.C. on July 21, 1998)
99.15 Form of Letter of Transmittal (Filed herewith)
99.16 Agreement re disclosure of long-term debt instruments (Filed
herewith)
</TABLE>
- ---------------
Schedules and supplemental materials to the exhibits have been omitted but will
be provided to the Securities and Exchange Commission upon request.
(b) Financial Statement Schedules
Not Applicable.
(c) Report, opinion or appraisal
(i)See Appendix A to each Prospectus Supplement for the opinions of Robert
A. Stanger & Company, Inc.
<PAGE> 1
EXHIBIT 5.1
[PIPER & MARBURY LETTERHEAD]
March 30, 1999
Apartment Investment and Management Company
1873 South Bellaire Street, Suite 1700
Denver, Colorado 80222
Registration Statement on Form S-4
Ladies and Gentlemen:
We have acted as Maryland counsel to Apartment Investment and
Management Company, a Maryland corporation (the "Company"), in connection with
the registration under the Securities Act of 1933, as amended (the "Act"),
pursuant to a Registration Statement on Form S-4 of the Company (Registration
No. 333-60355) (this "Registration Statement") filed with the Securities and
Exchange Commission (the "Commission") on July 31, 1998, as amended on
September 14, 1998, October 7, 1998, October 28, 1998, November 23, 1998,
December 11, 1998, January 19, 1999, February 12, 1999, March 15, 1999, and
March 26, 1999, March 29, 1999 and March 30, 1999 including the prospectus
included therein at the time the Registration Statement is declared effective
(the "Prospectus'), for offering by the Company from time to time of up to
$800,000,000 aggregate market price at the time of issuance of its (i) shares
of Preferred Stock, par value $.01 per share, of the Company (the "Preferred
Stock") of which the Class I Cumulative Preferred Stock, par value $.01 per
share, of the Company will be the first class so designated (the "Class I
Preferred Stock") and (ii) shares of Class A Common Stock, par value $.01 per
share, of the Company (the "Class A Common Stock"). The Preferred Stock and the
Class A Common Stock are sometimes collectively referred to as the
"Securities." The Securities may be issued by the Company from time to time
directly or indirectly in exchange for Partnership Common Units or Partnership
Preferred Units of AIMCO Properties, L.P., a Delaware limited partnership and
subsidiary of the Company. This opinion is being provided at your request in
connection with the filing of the Registration Statement.
<PAGE> 2
Apartment Investment and Management Company
March 30, 1999
Page 2
In our capacity as special Maryland counsel, we have reviewed originals
or copies, certified or otherwise identified to our satisfaction, of the
following documents:
(a) Amendment No. 11 to the Registration Statement dated
March 30, 1999 (containing the preliminary Prospectus and the
preliminary Prospectus Supplement for Baywood Apartments, Ltd.)
(collectively, the "Preliminary Prospectus") relating to the issuance
of the Securities;
(b) The Charter, certified by the Department of Assessments
and Taxation of the State of Maryland (the "MSDAT"), and By-Laws, as
amended and restated and in effect on the date hereof, of the Company;
(c) The draft of the Articles Supplementary relating to the
Class I Preferred Stock substantially in the form to be filed with
MSDAT;
(d) The Third Amended and Restated Agreement of Limited
Partnership of AIMCO Properties, L.P., a Delaware limited partnership,
dated as of July 29, 1994 and amended and restated as of October 1,
1998, First Amendment to Third Amended and Restated Agreement of
Limited Partnership of AIMCO Properties, L.P., dated November 6, 1998
Second Amendment to Third Amended and Restated Agreement of Limited
Partnership of AIMCO Properties, L.P., dated December 30, 1998, and
Third Amendment to Third Amended and Restated Agreement of Limited
Partnership of AIMCO Properties, L.P., dated February 18, 1999
(collectively, the "AIMCO L.P. Partnership Agreement");
(e) A draft of the Fourth Amendment to Third Amended and
Restated Agreement of Limited Partnership of AIMCO Properties, L.P.,
dated March 25, 1999 and of the Fifth Amendment to Third Amended and
Restated Agreement of Limited Partnership of AIMCO Properties, L.P.,
dated March 25, 1999;
(f) Certain resolutions of the Board of Directors of the
Company;
(g) A short-form good standing certificate for the Company,
dated a recent date, issued by the MSDAT;
<PAGE> 3
Apartment Investment and Management Company
March 30, 1999
Page 3
(h) A Certificate of Officer (the "Certificate") of the
Company, dated the date hereof, as to certain factual matters; and
(i) such other documents as we have considered necessary to
the rendering of the opinions expressed below.
In our examination of the aforesaid documents, we have assumed, without
independent investigation, the genuineness of all signatures, the authenticity
of all documents submitted to us as originals, and the conformity with originals
of all documents submitted to us as copies (and the authenticity of the
originals of such copies), and the accuracy and completeness of all public
records reviewed by us. In making our examination of documents executed by
parties other than the Company (and for purposes of the documents referred to
below to be executed by parties other than the Company), we have assumed that
such parties had the power, corporate or other, to enter into and perform all
obligations thereunder, and we have also assumed the due authorization by all
requisite action, corporate or other, and the valid execution and delivery by
such parties of such documents and the validity, binding effect, and
enforceability thereof with respect to such parties. As to any facts material to
this opinion which we did not independently establish or verify, we have relied
solely upon the Certificate.
We further assume that:
(a) The issuance and terms of the Securities to be offered
from time to time by the Company will be authorized and determined by
proper action of the Board of Directors (or where permitted, a
committee of the Board of Directors) of the Company (each, a "Board
Action") in accordance with the Company's Charter and By-Laws and
applicable law, in each case so as not to result in a default under or
breach of any agreement or instrument binding upon the Company and so
as to comply with any requirement or restriction imposed by any court
or governmental or regulatory body having jurisdiction over the
Company.
(b) Prior to the issuance of any shares of the Class A Common
Stock or the Preferred Stock, all actions necessary to the creation of
any such Preferred Stock, whether by charter amendment or by
classification or reclassification of
<PAGE> 4
Apartment Investment and Management Company
March 30, 1999
Page 4
existing capital stock and the filing of Articles Supplementary, will
have been taken.
(c) Appropriate certificates representing shares of the Class
A Common Stock or the Preferred Stock will be executed and delivered
upon issuance of any shares of the Class A Common Stock or the
Preferred Stock, as the case may be, and will comply with the Company's
Charter and By-Laws and applicable law.
(d) The final Prospectus and final Prospectus Supplement
relating to the issuance of any of the Securities will in all matters
material to this opinion conform to the provisions of the Preliminary
Prospectus.
(e) At the time of the issuance of any of the Securities the
AIMCO L.P. Partnership Agreement will provide for the exchange directly
or indirectly of Partnership Preferred Units and Partnership Common
Units for the Securities in a manner consistent with Board Action.
Based upon the foregoing and having regard for such legal consideration
as we deem relevant, we are of the opinion and advise you that:
1. The Board of Directors has authorized the issuance of up
to 20,000,000 shares of Class A Common Stock in exchange for
Partnership Common Units of AIMCO Properties, L.P. Upon further
authorizing action by Board Action of a specific issuance of Class A
Common Stock in circumstances other than in exchange for such
Partnership Common units, and upon issuance and delivery of
certificates for shares of such Class A Common Stock against payment
therefor in accordance with the terms and provisions of such Board
Action and in an amount not to exceed such 20,000,000 shares of Class A
Common Stock, the AIMCO L.P. Partnership Agreement (as in effect at the
time), the Registration Statement (as declared effective under the
Act), and the Prospectus or the applicable Prospectus Supplement, the
shares of the Class A Common Stock represented by such certificates
will be duly authorized, validly issued, fully paid, and
non-assessable.
2. The Board of Directors has authorized the issuance of
Preferred Stock in series in general terms. When a specific series of
the Preferred Stock has been duly authorized and established in
accordance with the applicable Board Action, the terms of the
Company's Charter and By-Laws, and applicable law, and, upon issuance
and delivery of certificates for shares of such class or series of the
Preferred Stock against payment therefor in accordance with the terms
and provisions of such Board Action and in an amount not to exceed the
Company's authorized but unissued Preferred Stock of Such Series, the
AIMCO L.P. Partnership Agreement (as in effect at the time), the
Registration Statement (as declared effective under the Act), and the
Prospectus or the applicable Prospectus Supplement, the shares of the
Preferred Stock represented by
<PAGE> 5
Apartment Investment and Management Company
March 30, 1999
Page 5
such certificates will be duly authorized, validly issued, fully paid,
and non-assessable.
The opinion stated herein relating to the validity and binding nature
of obligations of the Company is subject to (i) the effect of any applicable
bankruptcy, insolvency (including, without limitation, all laws relating to
fraudulent transfers), reorganization, moratorium, or similar laws affecting
creditors' rights generally and (ii) the effect of general principles of equity
(regardless of whether considered in a proceeding in equity or at law).
This opinion is limited to the laws of the State of Maryland, exclusive
of the securities or "blue sky" laws of the State of Maryland. The foregoing
opinion is rendered as of the date hereof. We assume no obligation to update
such opinion to reflect any facts or circumstances which may hereafter come to
our attention or changes in the law which may hereafter occur. To the extent
that any documents referred to herein are governed by the law of a jurisdiction
other than Maryland, we have assumed that the laws of such jurisdiction are the
same as the laws of the State of Maryland.
We hereby consent to the filing of this opinion with the Commission as
Exhibit 5.1 to the Registration Statement and to the reference to our firm under
the heading "Legal Matters" in the Registration Statement. We further consent to
the reliance on this opinion by Skadden, Arps, Slate, Meagher & Flom LLP in
rendering their opinion to the Company in connection with the filing of the
Registration Statement. This opinion is limited to the matters set forth herein,
and no other opinion should be inferred beyond the matters expressly stated.
Very truly yours,
/s/ Piper & Marbury LLP
<PAGE> 6
March 26, 1999
Apartment Investment and Management Company
1873 South Bellaire Street
Suite 1700
Denver, Colorado 80222
AIMCO Properties, L.P.
873 South Bellaire Street
Suite 1700
Denver, Colorado 80222
Re: Federal Income Tax Consequences
Ladies and Gentlemen:
You have requested our opinion concerning the material United States
Federal income tax consequences of the offers (the "Offers") by AIMCO
Properties, L.P., a Delaware limited partnership (the "AIMCO Operating
Partnership"), to acquire partnership units of the partnerships listed in
Exhibit A attached hereto (the "Target Partnerships") from an owner of such
partnership units (an "Offeree") in exchange for cash, AIMCO Operating
Partnership Preferred Units ("Preferred OP Units") and/or AIMCO Operating
Partnership Common Units ("Common OP Units," and together with the Preferred OP
Units, the "OP Units") as more fully described in (i) the Registration Statement
on Form S-4 (No. 333-60355) initially filed with the Securities and Exchange
Commission on July 31, 1998, as amended (the "Registration Statement"), (ii) the
prospectus, dated March 25, 1999 (the "Prospectus"), included as part of the
Registration Statement, and (iii) the prospectus supplements relating to the
Offers (the "Prospectus Supplements"), included as part of the Registration
Statement. All capitalized terms used herein, unless otherwise specified, shall
have the meanings assigned to them in the Registration Statement.
<PAGE> 1
EXHIBIT 5.2
[LETTERHEAD OF SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP]
March 30, 1999
AIMCO Properties, L.P.
1873 South Bellaire Street, 17th Floor
Denver, Colorado 80222
Re: Apartment Investment and Management Company
AIMCO Properties, L.P.
Registration Statement on Form S-4
Dear Ladies and Gentlemen:
We have acted as special counsel to AIMCO Properties, L.P., a
Delaware limited partnership (the "Partnership"), in connection with the
preparation of the Registration Statement (the "Registration Statement") on Form
S-4 (File No. 333-60355), filed by the Partnership and Apartment Investment and
Management Company, a Maryland corporation ("AIMCO"), with the Securities and
Exchange Commission (the "Commission").
The Registration Statement relates to the issuance and sale
from time to time, pursuant to Rule 415 of the General Rules and Regulations of
the Commission promulgated under the Securities Act of 1933, as amended (the
"Securities Act"), of (i) up to $200,000,000 aggregate initial offering price of
Partnership Common Units (the "Common Units") of the Partnership, and (ii) up to
$200,000,000 aggregate initial offering price of Partnership Preferred Units
(the "Preferred Units" and, together with the Common Units, the "Securities") of
the Partnership. The Securities include Common Units and Class Two Partnership
Preferred Units of the Partnership to be issued in exchange offers (the
"Exchange Offers") described in Prospectus Supplements filed as a part of the
Registration Statement.
This opinion is being furnished in accordance with the
requirements of Item 601(b)(5) of Regulation S-K promulgated under the
Securities Act.
<PAGE> 2
AIMCO Properties, L.P.
March 30, 1999
Page 2
In connection with this opinion, we have examined originals or
copies (including facsimile transmissions), certified or otherwise identified to
our satisfaction, of (i) the Registration Statement; (ii) the Agreement of
Limited Partnership of the Partnership (the "Partnership Agreement"); (iii) the
Partnership Unit Designation relating to the Class Two Partnership Preferred
Units; (iv) the Certificate of Incorporation of AIMCO-GP, Inc., a Delaware
corporation and the general partner of the Partnership (the "General Partner");
(v) the By-laws of the General Partner; and (vi) certain resolutions adopted by
the Board of Directors of the General Partner (the "Board Resolutions"),
relating to the issuance and sale, on a delayed or continuous basis, of the
Securities and related matters. We have also examined originals or copies
(including facsimile transmissions), certified or otherwise identified to our
satisfaction, of such records of the Partnership and the General Partner, and
such agreements, certificates or records of public officials, certificates of
officers or other representatives of the Partnership, the General Partner and
others, and such other documents, certificates and records as we have deemed
necessary or appropriate as a basis for the opinion set forth herein.
In our examination, we have assumed the legal capacity of all
natural persons, the genuineness of all signatures, the authenticity of all
documents submitted to us as originals, the conformity to original documents of
all documents submitted to us as certified, conformed, photostatic or facsimile
copies and the authenticity of the originals of such copies. In making our
examination of documents executed or to be executed by parties other than the
Partnership or the General Partner, we have assumed that such parties had or
will have, as the case may be, the power, corporate or other, to enter into and
perform all obligations thereunder and have also assumed the due authorization
by all requisite action, corporate or other, and execution and delivery by such
parties of such documents and the validity, enforceability and binding effect
thereof. As to any facts material to the opinions expressed herein which were
not independently established or verified, we have relied upon oral or written
statements and representations of officers and other representatives of the
Partnership, the General Partner and others.
In rendering the opinion set forth herein, we have further
assumed that the issuance of the Securities does not and will not violate,
conflict with or constitute a breach of or default under (i) any agreement or
instrument to which the Partnership, the General Partner or any of their assets
is subject (excluding the Partnership Agreement), (ii) any law, rule, or
regulation to which the Partnership, the General Partner, or any of their assets
is subject, (iii) any judicial or regulatory order or decree
<PAGE> 3
AIMCO Properties, L.P.
March 30, 1999
Page 3
of any governmental authority, or (iv) any consent, approval, license,
authorization or validation of, or filing, recording or registration with any
governmental authority.
Members of our firm are admitted to the Bar in the State of
Delaware and we do not express any opinion as to the laws of any jurisdiction
other than the Delaware General Corporation Law, the Delaware Revised Uniform
Limited Partnership Act and the laws of the United States of America to the
extent referred to specifically herein. The Securities may be issued from time
to time on a delayed or continuous basis, and this opinion is limited to such
laws, including the rules and regulations, as in effect on the date hereof.
We further assume that the issuance, sale, amount, and terms
of the Securities (other than pursuant to the Exchange Offers) has been or will
be authorized and determined by proper action of the Board of Directors of the
General Partner, and in accordance with the Partnership Agreement and applicable
law.
Based upon and subject to the foregoing and to the other
qualifications and limitations set forth herein, we are of the opinion that:
(1) The Common Units and the Class Two Partnership Preferred
Units, when issued and sold pursuant to the Exchange Offers, will be
validly issued.
(2) Upon payment of the consideration and satisfaction of the
terms and conditions established by the General Partner for the
issuance thereof, the Common Units (except Common Units issued and sold
pursuant to the Exchange Offers) will be validly issued.
(3) Upon the due authorization and establishment of a class or
series of Preferred Units by the General Partner in accordance with the
Partnership Agreement and applicable law, and upon payment of the
consideration and satisfaction of the terms and conditions established
by the General Partner for the issuance thereof, Preferred Units of any
such class or series (except the Class Two Partnership Preferred Units)
will be validly issued.
The foregoing opinion is rendered as of the date hereof. We
assume no obligation to update such opinion to reflect any facts of
circumstances which may hereafter come to our attention or changes in the law
which may hereafter occur.
<PAGE> 4
AIMCO Properties, L.P.
March 30, 1999
Page 4
We hereby consent to the filing of this opinion with the
Commission as an exhibit to the Registration Statement. We also consent to the
reference to our firm under the caption "Legal Matters" in any prospectus or
prospectus supplement which constitutes a part of the Registration Statement. In
giving this consent, we do not thereby admit that we are included in the
category of persons whose consent is required under Section 7 of the Securities
Act or the rules and regulations of the Commission promulgated thereunder. This
opinion is expressed as of the date hereof and we disclaim any undertaking to
advise you of any subsequent changes in the facts stated or assumed herein or of
any subsequent changes in applicable law.
Very truly yours,
Skadden, Arps, Slate, Meagher & Flom LLP
<PAGE> 1
EXHIBIT 8.1.1
May 8, 1998
Apartment Investment and Management Company
1873 South Bellaire Street, Suite 1700
Denver, CO 80222
Re: STATUS OF AMBASSADOR APARTMENTS, INC. AS A REIT
Ladies and Gentlemen:
Our opinion has been requested pursuant to Section 8.2(f) of that certain
Agreement and Plan of Merger dated as of December 23, 1997, and supplemented by
a letter dated March 11, 1998, by and between Apartment Investment and
Management Company, a Maryland corporation ("AIMCO"), and Ambassador
Apartments, Inc., a Maryland corporation ("Ambassador"), regarding the status
of Ambassador as a real estate investment trust ("REIT") under the Internal
Revenue Code of 1986, as amended ("Code"). Unless otherwise specifically
defined herein, all capitalized terms have the meanings assigned to them in the
Merger Agreement.
We have acted as counsel to Ambassador in connection with the merger. We
have reviewed the Articles of Incorporation of Ambassador and such other
documentation and information provided to us by Ambassador and others as is
relevant to the matter on which we are opining. In addition, there have been
provided to us certificates and representations of Ambassador and of Ernst &
Young LLP, independent public accountants of Ambassador, relating to various
factual matters. We have made no independent investigation as to the facts set
forth in any of the foregoing. Nothing has come to our attention, however, that
would indicate in any material respect that such facts as so set forth are not
accurate or complete or do not include all material facts relevant to our
opinion.
Our opinion is based on the Code and the regulations thereunder, and on the
interpretations thereof by the courts and the Internal Revenue Service, all as
they exist on the date of this letter. These authorities are subject to change,
including changes with retroactive effect. No assurance can be given as to
whether, when, in what forms, or with what effective dates the tax laws (or the
interpretations thereof) may be changed.
<PAGE> 2
Apartment Investment & Management Company
May 8, 1998
Page 2
Based on and subject to the foregoing, it is our opinion that, for its
taxable year ended December 31, 1994, and all subsequent taxable years ending on
or before the Effective Time (including the short taxable year ending in
connection with the Merger), Ambassador was organized and has operated in
conformity with the requirements for qualification as a REIT under the Code.
Other than as expressly stated above, we express no tax or other legal
opinion as to any matter. This opinion is intended for the exclusive use of the
person to whom it is addressed, and it may not be used, circulated, quoted or
relied on for any other purpose without our prior, written consent.
Very truly yours,
ALTHEIMER & GRAY
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in
Amendment No. 11 to the Registration Statement on Form S-4 and related
Prospectus of Apartment Investment and Management Company for the registration
of Preferred Stock and Class A Common Stock and of AIMCO Properties, L.P. for
the registration of Partnership Preferred Units and Partnership Common Units,
and (i) to the incorporation by reference therein of our report dated March 6,
1998, except for Note 25, as to which the date is March 17, 1998, with respect
to the consolidated financial statements and schedule of Apartment Investment
and Management Company included in its Annual Report (Form 10-K/A) for the year
ended December 31, 1997; and (ii) to the inclusion therein of our report dated
March 6, 1998, except for Note 21, as to which the date is June 5, 1998, with
respect to the consolidated financial statements and schedule of AIMCO
Properties, L.P. included in its Registration Statement on Form 10, all filed
with the Securities and Exchange Commission.
/s/ ERNST & YOUNG LLP
Dallas, Texas
March 22, 1999
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in Amendment
No. 11 to the Registration Statement (Form S-4 No. 333-60355) and related
Prospectus of Apartment Investment and Management Company (AIMCO) and AIMCO
Properties, L.P. for the registration of Preferred Stock and Class A Common
Stock of AIMCO and Partnership Preferred Units and Partnership Common Units of
AIMCO Properties, L.P., and to the incorporation by reference therein of our
report dated January 30, 1998 (except for Note 19, as to which the date is March
5, 1998), with respect to the consolidated financial statements and schedule of
Ambassador Apartments, Inc. (Ambassador) as of December 31, 1997 and 1996, and
for each of the three years in the period ended December 31, 1997, included in
AIMCO's Current Report on Form 8-K dated March 17, 1998 (as amended on April 3,
1998), and 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 statements and schedule of
Ambassador as of December 31, 1996 and 1995, and for each of the two years in
the period ended December 31, 1996 and the period from August 31, 1994 through
December 31, 1994, and the combined financial statements of Prime Properties
(Predecessor to Ambassador) for the period from January 1, 1994 through August
30, 1994, included in Amendment No. 1 filed on February 6, 1998 to AIMCO's
Current Report on Form 8-K dated December 23, 1997, filed with the Securities
and Exchange Commission.
/s/ Ernst & Young LLP
Chicago, Illinois
March 22, 1999
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in Amendment
No. 11 to the Registration Statement (Form S-4 No. 333-60355) and related
Prospectus of Apartment Investment and Management Company for the registration
of $600,000,000 of its Preferred Stock and Class A Common Stock and of AIMCO
Properties, L.P. for the registration of $200,000,000 of its Partnership
Preferred Units and $200,000,000 of its Partnership Common Units and to the
incorporation by reference therein of our report dated February 13, 1998,
except for Note 20, as to which the date is March 19, 1998, with respect to the
consolidated financial statements of Insignia Financial Group, Inc. as of
December 31, 1997 and 1996, and for each of the three years in the period ended
December 31, 1997 included as exhibit 99.2 in Apartment Investment and
Management Company's Current Report on Form 8-K dated March 17, 1998 (and
Amendment No. 1 thereto filed April 3, 1998), filed with the Securities and
Exchange Commission.
/s/ Ernst & Young LLP
---------------------
Greenville, South Carolina
March 25, 1999
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in
Amendment No. 11 to the Registration Statement on Form S-4 and related
Prospectus of Apartment Investment and Management Company for the registration
of Preferred Stock and Class A Common Stock and of AIMCO Properties, L.P. for
the registration of $200,000,000 of its Partnership Preferred Units and
Partnership Common Units, and to the incorporation by reference therein of our
report dated March 27, 1998, except for Note 1, as to which the date is
September 24, 1998, with respect to the Historical Summary of Gross Income and
Direct Operating Expenses of Sun Lake Apartments for each of the three years in
the period ended December 31, 1997 included in Amendment No. 3 to Apartment
Investment and Management Company's Current Report on Form 8-K dated November
2, 1998 filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
Indianapolis, Indiana
March 22, 1999
<PAGE> 1
EXHIBIT 23.8.12
General Partners
Sycamore Creek Associates, Limited:
We consent to the use of our reports with respect to the financial statements of
Sycamore Creek Associates, Limited as of December 31, 1997 and 1996 and for each
of the years in the three-year period ended December 31, 1997 included herein
and to the reference to our firm under the heading "Experts" in the prospectus
supplement.
KPMG Peat Marwick LLP
Greenville, South Carolina
March 26, 1999
<PAGE> 1
EXHIBIT 23.13
[BARRY S. FISHMAN & ASSOCIATES LETTERHEAD]
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected Financial
Information" and "Experts" and to the use of our report dated December 21,
1998, with respect to the financial statements of Ravensworth Associates
Limited Partnership for the years ended December 31, 1997 and December 31,
1996, in the Registration Statement Form S-4 of AIMCO Properties, L.P.
/s/ BARRY S. FISHMAN & ASSOCIATES, CHARTERED
March 25, 1999
Bethesda, Maryland
<PAGE> 1
EXHIBIT 99.15
LETTER OF TRANSMITTAL
TO TENDER UNITS OF LIMITED PARTNERSHIP INTEREST
IN
[ ]
LIMITED PARTNERSHIP
PURSUANT TO AN OFFER
DATED MARCH 26, 1999
BY
AIMCO PROPERTIES, L.P.
---------------------
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT
5:00 P.M., NEW YORK CITY TIME, ON JUNE 4, 1999, UNLESS EXTENDED.
---------------------
The Information Agent for the offer is:
RIVER OAKS PARTNERSHIP SERVICES, INC.
<TABLE>
<S> <C> <C>
By Mail: By Overnight Courier: By Hand:
P.O. Box 2065 111 Commerce Road 111 Commerce Road
S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072
Attn.: Reorganization Dept. Attn.: Reorganization Dept.
</TABLE>
By Telephone:
Toll Free (818) 349-2005
or
(201) 896-1900
By Fax:
(201) 896-0910
<TABLE>
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF UNITS TENDERED
- --------------------------------------------------------------------------------------------------------------------
NAME(S) AND ADDRESS(ES) OF
REGISTERED HOLDER(S)
(PLEASE INDICATE CHANGES
OR NUMBER OF UNITS TENDERED
CORRECTIONS TO THE NAME, (ATTACH ADDITIONAL LIST, IF NECESSARY)
ADDRESS AND
TAX IDENTIFICATION NUMBER
PRINTED ABOVE.)
- --------------------------------------------------------------------------------------------------------------------
2. NUMBER 3. NUMBER
OF UNITS OF UNITS 4. NUMBER 5. TOTAL
1. TOTAL TENDERED FOR TENDERED FOR OF UNITS NUMBER
NUMBER OF PREFERRED COMMON TENDERED FOR OF UNITS
UNITS OWNED OP UNITS OP UNITS CASH TENDERED
(#) (#) (#) (#) (#)
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 2
To participate in the offer and receive either cash, Partnership Common
Units ("Common OP Units") of AIMCO Properties, L.P. (the "Purchaser") or Class
Two Partnership Preferred Units ("Preferred OP Units") of the Purchaser, you
must send a duly completed and executed copy of this Letter of Transmittal and
any other documents required by this Letter of Transmittal so that such
documents are received by River Oaks Partnership Services, Inc., the Information
Agent, on or prior to June 4, 1999 (the "Expiration Date"). THE METHOD OF
DELIVERY OF THIS LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT
YOUR OPTION AND RISK AND, DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY
RECEIVED BY THE INFORMATION AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH
RETURN RECEIPT REQUESTED IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE TIMELY DELIVERY. DELIVERY OF THIS LETTER OF TRANSMITTAL OR ANY
OTHER REQUIRED DOCUMENTS TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE DOES NOT
CONSTITUTE VALID DELIVERY.
FOR INFORMATION OR ASSISTANCE IN CONNECTION WITH THE OFFER OR THE
COMPLETION OF THIS LETTER OF TRANSMITTAL, PLEASE CONTACT THE INFORMATION AGENT
AT (888) 349-2005 (TOLL FREE) OR (201) 896-1900.
THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ
CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED.
SPECIAL PAYMENT INSTRUCTIONS
(SEE INSTRUCTIONS 2, 4 AND 9)
To be completed ONLY if the consideration for the purchase price of Units
accepted for payment is to be issued in the name of someone other than the
undersigned.
[ ] Issue consideration to:
Name:
- ----------------------------------------
(Please type or Print)
Address:
- --------------------------------------
- ------------------------------------------------
- ------------------------------------------------
- ------------------------------------------------
(Include Zip Code)
- ------------------------------------------------
(Tax Identification or Social Security No.)
(See Substitute Form W-9)
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 2, 4 AND 9)
To be completed ONLY if the consideration for the purchase price of Units
accepted for payment is to be sent to someone other than the undersigned or to
the undersigned at an address other than that shown above.
[ ] Mail consideration to:
Name:
- ----------------------------------------
(Please type or Print)
Address:
- --------------------------------------
- ------------------------------------------------
- ------------------------------------------------
- ------------------------------------------------
(Include Zip Code)
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
<PAGE> 3
Ladies and Gentlemen:
The undersigned (the "Limited Partner") hereby acknowledges that he or she
has received and reviewed (i) the Apartment Investment and Management Company
and AIMCO Properties, L.P. Prospectus, dated March 26, 1999, as supplemented or
amended from time to time, (ii) the Purchaser's Prospectus Supplement, dated
March 26, 1999, which describes the exchange offer, as supplemented or amended
from time to time, and (iii) this Letter of Transmittal, including the
Instructions hereto, as it may be supplemented or amended from time to time (the
"Letter of Transmittal"). (all constituting the "Offer").
Upon the terms and subject to the conditions set forth in the Offer, the
undersigned hereby tenders to the Purchaser the units of limited partnership
interest ("Units") in [ ], a [ ] limited partnership
(the "Partnership"), set forth in the box above entitled "Description of Units
Tendered" under the column entitled "Total Number of Units Tendered." For each
Unit that you tender, you may choose to receive as consideration per Unit (the
"Offer Price") any combination of Class Two Partnership Preferred
Units, ("Preferred OP Units"), Partnership Common Units ("Common
OP Units") or $ in cash, reduced in each case for the amount of
distributions, if any, made by the Partnership from the date the Offer commences
(the "Offer Date") until the Expiration Date. The number of Units you choose to
tender for each type of consideration will be set forth by you in the box above
entitled "Description of Units Tendered" under the columns entitled "Number of
Units Tendered for Preferred OP Units," "Number of Units Tendered for Common OP
Units," and "Number of Units Tendered for Cash." ALL HOLDERS OF UNITS WHO DO NOT
SPECIFY WHICH TYPE OF CONSIDERATION THEY WISH TO RECEIVE WILL BE DEEMED TO HAVE
ELECTED TO RECEIVE PREFERRED OP UNITS.
Subject to and effective upon payment of any of the Units tendered hereby
in accordance with the terms of the Offer, the undersigned hereby irrevocably
sells, assigns, transfers, conveys and delivers to, or upon the order of, the
Purchaser all right, title and interest in and to such Units tendered hereby
that are accepted for payment pursuant to the Offer, including, without
limitation, (i) all of the undersigned's interest in the capital of the
Partnership, and the undersigned's interest in all profits, losses and
distributions of any kind to which the undersigned shall at any time be entitled
in respect of the Units; (ii) all other payments, if any, due or to become due
to the undersigned in respect of the Units, under or arising out of the
Partnership Agreement, whether as contractual obligations, damages, insurance
proceeds, condemnation awards or otherwise; (iii) all of the undersigned's
claims, rights, powers, privileges, authority, options, security interests,
liens and remedies, if any, under or arising out of the Partnership Agreement or
the undersigned's ownership of the Units, including, without limitation, all
voting rights, rights of first offer, first refusal or similar rights, and
rights to be substituted as a limited partner of the Partnership; and (iv) all
present and future claims, if any, of the undersigned against the Partnership,
the other partners of the Partnership, or the general partner and its
affiliates, including the Purchaser, under or arising out of the Partnership
Agreement, the undersigned's status as a limited partner, or the terms or
conditions of the Offer, for monies loaned or advanced, for services rendered,
for the management of the Partnership or otherwise.
The undersigned hereby irrevocably constitutes and appoints the Purchaser
and any designees of the Purchaser as the true and lawful agent and
attorney-in-fact of the undersigned with respect to such Units, with full power
of substitution (such power of attorney being deemed to be an irrevocable power
coupled with an interest), to vote or act in such manner as any such attorney
and proxy or substitute shall, in its sole discretion, deem proper with respect
to such Units, to do all such acts and things necessary or expedient to deliver
such Units and transfer ownership of such Units on the partnership books
maintained by the general partner of the Partnership, together with all
accompanying evidence of transfer and authenticity to, or upon the order of, the
Purchaser, to sign any and all documents necessary to authorize the transfer of
the Units to the Purchaser including, without limitation, the "Transferor's
(Seller's) Application for Transfer" created by the National Association of
Securities Dealers, Inc., if required, and upon receipt by the Information Agent
(as the undersigned's agent) of the offer price, to become a substitute limited
partner, to receive any and all distributions made by the Partnership from and
after the expiration date of the offer (regardless of the record date for any
such distribution), and to receive all benefits and otherwise exercise all
rights of beneficial ownership of such Units all in accordance with the terms of
the Offer. This appointment is effective upon the purchase of the Units by the
Purchaser as provided in the Offer. Upon the purchase of Units pursuant to the
Offer, all prior proxies and consents given by the undersigned with respect to
such Units will be revoked and no subsequent proxies or consents may be given
(and if given will not be deemed effective).
In addition to and without limiting the generality of the foregoing, the
undersigned hereby irrevocably (i) requests and authorizes (subject to and
effective upon acceptance for payment of any Unit tendered hereby) the
Partnership and general partner to take any and all actions as may be required
to effect the
<PAGE> 4
transfer of the undersigned's Units to the Purchaser (or its designee) and to
admit the Purchaser as a substitute limited partner in the Partnership under the
terms of the Partnership Agreement; (ii) empowers the Purchaser and its agent to
execute and deliver to the general partner a change of address form instructing
the general partner to send any and all future distributions to the address
specified in the form, and to endorse any check payable to or upon the order of
such Limited Partner representing a distribution to which the Purchaser is
entitled to the terms of the offer, in each case in the name and on behalf of
the tendering Limited Partner; and (iii) agrees not to exercise any rights
pertaining to the Units without the prior consent of the Purchaser.
NOTWITHSTANDING ANY PROVISION IN THE PARTNERSHIP AGREEMENT TO THE CONTRARY,
THE UNDERSIGNED HEREBY DIRECTS THE GENERAL PARTNER OF THE PARTNERSHIP TO MAKE
ALL DISTRIBUTIONS AFTER THE PURCHASER ACCEPTS THE TENDERED UNITS FOR PAYMENT TO
THE PURCHASER OR ITS DESIGNEE. Subject to and effective upon acceptance for
payment of any Unit tendered hereby, the undersigned hereby requests that the
Purchaser be admitted to each Partnership as a substitute limited partner under
the terms of its Partnership Agreement. Upon request, the undersigned will
execute and deliver additional documents deemed by the Information Agent or the
Purchaser to be necessary or desirable to complete the assignment, transfer and
purchase of Units tendered hereby and will hold any distributions received from
the Partnership after the Expiration Date in trust for the benefit of the
Purchaser and, if necessary, will promptly forward to the Purchaser any such
distributions immediately upon receipt. The Purchaser reserves the right to
transfer or assign, in whole or in part, from time to time, to one or more of
its affiliates, the right to purchase Units tendered pursuant to the Offer, but
any such transfer or assignment will not relieve the Purchaser of its
obligations under the Offer or prejudice the rights of tendering limited
partners to receive payment for Units validly tendered and accepted for payment
pursuant to the Offer.
By executing this Letter of Transmittal, the undersigned represents that
either (i) the undersigned is not a plan subject to Title I of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), or Section 4975 of
the Internal Revenue Code of 1986, as amended (the "Code"), or an entity deemed
to hold "plan assets" within the meaning of 29 C.F.R. Section 2510.3-101 of any
such plan, or (ii) the tender and acceptance of Units pursuant to the Offer will
not result in a nonexempt prohibited transaction under Section 406 of ERISA or
Section 4975 of the Code.
The undersigned understands that a tender of Units to the Purchaser will
constitute a binding agreement between the undersigned and the Purchaser upon
the terms and subject to the conditions of the Offer. The undersigned recognizes
that under certain circumstances set forth in the Offer, the Purchaser may not
be required to accept for payment any of the Units tendered hereby. In such
event, the undersigned understands that any Letter of Transmittal for Units not
accepted for payment may be destroyed by the Purchaser (or its agent). UNITS
TENDERED PURSUANT TO THE OFFER MAY BE WITHDRAWN AT ANY TIME PRIOR TO THEIR
ACCEPTANCE FOR PAYMENT AS PROVIDED IN THE OFFER.
THE UNDERSIGNED HAS BEEN ADVISED THAT THE PURCHASER IS AN AFFILIATE OF THE
GENERAL PARTNER OF THE PARTNERSHIP AND THE GENERAL PARTNER OF THE PARTNERSHIP
MAKES NO RECOMMENDATION TO THE UNDERSIGNED AS TO WHETHER TO TENDER OR TO REFRAIN
FROM TENDERING UNITS IN THE OFFER AND THE UNDERSIGNED HAS MADE HIS OR HER OWN
DECISION TO TENDER UNITS.
The undersigned hereby represents and warrants for the benefit of the
Partnership and the Purchaser that the undersigned owns the Units tendered
hereby and has full power and authority and has taken all necessary action to
validly tender, sell, assign, transfer, convey and deliver the Units tendered
hereby and that when the same are accepted for payment by the Purchaser, the
Purchaser will acquire good, marketable and unencumbered title thereto, free and
clear of all liens, restrictions, charges, encumbrances, conditional sales
agreements or other obligations relating to the sale or transfer thereof, and
such Units will not be subject to any adverse claims and that the transfer and
assignment contemplated herein are in compliance with all applicable laws and
regulations.
All authority herein conferred or agreed to be conferred shall survive the
death or incapacity of the undersigned, and any obligations of the undersigned
shall be binding upon the heirs, personal representatives, trustees in
bankruptcy, legal representatives, and successors and assigns of the
undersigned.
The undersigned, if he is accepting the Offer for OP Units, hereby
acknowledges that he has reviewed the Third Amended and Restated Agreement of
Limited Partnership (the "Partnership Agreement") attached as Appendix B to the
Prospectus, and hereby accepts admission to the Purchaser as an Additional
Limited Partner and agrees to be bound by all of the provisions of the
Partnership Agreement, which is incorporated herein by reference, including,
without limitation, the power of attorney set forth in Section 2.4 of the
Partnership Agreement.
<PAGE> 5
SIGNATURE BOX
(SEE INSTRUCTION 2)
Please sign exactly as your name is printed on the front of this Letter of
Transmittal. For joint owners, each joint owner must sign. (See Instruction 2).
TRUSTEES, EXECUTORS, ADMINISTRATORS, GUARDIANS, ATTORNEYS-IN-FACT, OFFICERS
OF A CORPORATION OR OTHER PERSONS ACTING IN A FIDUCIARY OR REPRESENTATIVE
CAPACITY, PLEASE COMPLETE THIS BOX AND SEE INSTRUCTION 2.
The signatory hereto hereby tenders the Units indicated in this Letter of
Transmittal to the Purchaser pursuant to the terms of the Offers, and certifies
under penalties of perjury that the statements in Box A, Box B and, if
applicable, Box C are true.
X
- --------------------------------------------------------------------------------
(SIGNATURE OF OWNER)
X
- --------------------------------------------------------------------------------
(SIGNATURE OF JOINT OWNER)
Name and Capacity (if other than individuals):
--------------------------------------------------------------
Title:
- --------------------------------------------------------------------------------
Address:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(CITY) (STATE) (ZIP)
Area Code and Telephone No. (Day):
- ------------------------------------------------------------------------
(Evening):
-----------------------------------------------------------
SIGNATURE GUARANTEE
(IF REQUIRED)
(SEE INSTRUCTION 2)
Name and Address of Eligible Institution:
--------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Authorized Signature: X
- --------------------------------------------------------------------------------
Name:
- --------------------------------------------------------------------------------
Title:
- --------------------------------------- Date:
- ------------------------------------, 1999
<PAGE> 6
TAX CERTIFICATIONS
(SEE INSTRUCTION 4)
By signing the Letter of Transmittal in the Signature Box, the Limited
Partner certifies as true under penalty of perjury, the representations in Boxes
A, B and C below. Please refer to the attached Instructions for completing this
Letter of Transmittal and Boxes A, B and C below.
BOX A
SUBSTITUTE FORM W-9
(SEE INSTRUCTION 4 -- BOX A)
The Limited Partner hereby certifies the following to the Purchaser under
penalties of perjury:
(i) The Taxpayer Identification No. ("TIN") printed (or corrected) on the
front of this Letter of Transmittal is the correct TIN of the Limited Partner,
unless the Units are held in an Individual Retirement Account (IRA); or if this
box [ ] is checked, the Limited Partner has applied for a TIN. If the Limited
Partner has applied for a TIN, a TIN has not been issued to the Limited Partner,
and either (a) the Limited Partner has mailed or delivered an application to
receive a TIN to the appropriate IRS Center or Social Security Administration
Office, or (b) the Limited Partner intends to mail or deliver an application in
the near future (it being understood that if the Limited Partner does not
provide a TIN to the Purchaser, 31% of all reportable payments made to the
Limited Partner will be withheld); and
(ii) Unless this box [ ] is checked, the Limited Partner is not subject to
backup withholding either because the Limited Partner: (a) is exempt from backup
withholding; (b) has not been notified by the IRS that the Limited Partner is
subject to backup withholding as a result of a failure to report all interest or
dividends; or (c) has been notified by the IRS that such Limited Partner is no
longer subject to backup withholding.
Note: Place an "X" in the box in (ii) above, only if you are unable to certify
that the Limited Partner is not subject to backup withholding.
<PAGE> 7
BOX B
FIRPTA AFFIDAVIT
(SEE INSTRUCTION 4 -- BOX B)
Under Section 1445(e)(5) of the Internal Revenue Code and Treas. Reg.
1.1445-11T(d), a transferee must withhold tax equal to 10% of the amount
realized with respect to certain transfers of an interest in a partnership if
50% or more of the value of its gross assets consists of U.S. real property
interests and 90% or more of the value of its gross assets consists of U.S. real
property interests plus cash equivalents, and the holder of the partnership
interest is a foreign person. To inform the Purchaser that no withholding is
required with respect to the Limited Partner's Units in the Partnership, the
person signing this Letter of Transmittal hereby certifies the following under
penalties of perjury:
(i) Unless this box [ ] is checked, the Limited Partner, if an individual,
is a U.S. citizen or a resident alien for purposes of U.S. income taxation, and
if other than an individual, is not a foreign corporation, foreign partnership,
foreign estate or foreign trust (as those terms are defined in the Internal
Revenue Code and Income Tax Regulations);
(ii) The Limited Partner's U.S. social security number (for individuals) or
employer identification number (for non-individuals) is correct as furnished in
the blank provided for that purpose on the front of the Letter of Transmittal;
(iii) The Limited Partner's home address (for individuals), or office
address (for non-individuals), is correctly printed (or corrected) on the front
of this Letter of Transmittal.
The person signing this Letter of Transmittal understands that this
certification may be disclosed to the IRS by the Purchaser and that any false
statements contained herein could be punished by fine, imprisonment, or both.
(SEE BOX C ON REVERSE SIDE)
<PAGE> 8
BOX C
SUBSTITUTE FORM W-8
(SEE INSTRUCTION 4 -- BOX C)
By checking this box [ ], the person signing this Letter of Transmittal
hereby certifies under penalties of perjury that the Limited Partner is an
"exempt foreign person" for purposes of the Backup Withholding rules under the
U.S. Federal income tax laws, because the Limited Partner has the following
characteristics:
(i) Is a nonresident alien individual or a foreign corporation,
partnership, estate or trust;
(ii) If an individual, has not been and plans not to be present in the U.S.
for a total of 183 days or more during the calendar year; and
(iii) Neither engages, nor plans to engage, in a U.S. trade or business
that has effectively connected gains from transactions with a broker or barter
exchange.
<PAGE> 9
INSTRUCTIONS
FOR COMPLETING LETTER OF TRANSMITTAL
1. REQUIREMENTS OF TENDER. To be effective, a duly completed and signed Letter
of Transmittal (or facsimile thereof) and any other required documents must
be received by the Information Agent at one of its addresses (or its
facsimile number) set forth herein before 5:00 p.m., New York City Time, on
June 4, 1999, unless extended. To ensure receipt of the Letter of
Transmittal and any other required documents, it is suggested that you use
overnight courier delivery or, if the Letter of Transmittal and any other
required documents are to be delivered by United States mail, that you use
certified or registered mail, return receipt requested. WHERE NO DEFINITIVE
INDICATION IS MARKED IN THE BOX ENTITLED "DESCRIPTION OF UNITS TENDERED"
UNDER THE COLUMNS ENTITLED "NUMBER OF UNITS TENDERED FOR PREFERRED OP
UNITS," "NUMBER OF UNITS TENDERED FOR COMMON OP UNITS," AND "NUMBER OF
UNITS TENDERED FOR CASH," LETTERS OF TRANSMITTAL THAT HAVE BEEN DULY
EXECUTED SHALL BE DEEMED TO HAVE TENDERED ALL UNITS FOR PREFERRED OP UNITS
PURSUANT TO THE OFFER.
WHEN TENDERING BY FACSIMILE, PLEASE TRANSMIT ALL PAGES OF THE LETTER OF
TRANSMITTAL, INCLUDING TAX CERTIFICATIONS (BOXES A, B AND C).
THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED
DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING LIMITED PARTNER AND
DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION
AGENT. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY
DELIVERY.
2.SIGNATURE REQUIREMENTS.
INDIVIDUAL AND JOINT OWNERS -- After carefully reading and completing the
Letter of Transmittal, to tender Units, Limited Partners must sign at the
"X" in the Signature Box of the Letter of Transmittal. The signature(s) must
correspond exactly with the names printed (or corrected) on the front of the
Letter of Transmittal. If the Letter of Transmittal is signed by the Limited
Partner (or beneficial owner in the case of an IRA), no signature guarantee
on the Letter of Transmittal is required. If any tendered Units are
registered in the names of two or more joint owners, all such owners must
sign this Letter of Transmittal.
IRA'S/ELIGIBLE INSTITUTIONS -- For Units held in an IRA account, the
beneficial owner should sign in the Signature Box and no signature guarantee
is required. Similarly, if Units are tendered for the account of a member
firm of a registered national security exchange, a member firm of the
National Association of Securities Dealers, Inc. or a commercial bank,
savings bank, credit union, savings and loan association or trust company
having an office, branch or agency in the United States (each an "Eligible
Institution"), no signature guarantee is required.
TRUSTEES, CORPORATIONS, PARTNERSHIPS AND FIDUCIARIES -- Trustees, executors,
administrators, guardians, attorneys-in-fact, officers of a corporation,
authorized partners of a partnership or other persons acting in a fiduciary
or representative capacity must sign at the "X" in the Signature Box and
have their signatures guaranteed by an Eligible Institution by completing
the signature guarantee set forth in the Signature Box of the Letter of
Transmittal. If the Letter of Transmittal is signed by trustees,
administrators, guardians, attorneys-in-fact, officers of a corporation,
authorized partners of a partnership or others acting in a fiduciary or
representative capacity, such persons should, in addition to having their
signatures guaranteed, indicate their title in the Signature Box and must
submit proper evidence satisfactory to the Purchaser of their authority to
so act (see Instruction 3 below).
3. DOCUMENTATION REQUIREMENTS. In addition to the information required to be
completed on the Letter of Transmittal, additional documentation may be
required by the Purchaser under certain circumstances including, but not
limited to, those listed below. Questions on documentation should be
directed to the Information Agent at its telephone number set forth herein.
DECEASED OWNER (JOINT TENANT) -- Copy of death certificate.
DECEASED OWNER (OTHERS) -- Copy of death certificate (see also
Executor/Administrator/Guardian below).
<PAGE> 10
EXECUTOR/ADMINISTRATOR/GUARDIAN -- Copy of court appointment documents for
executor or administrator; and (a) a copy of applicable provisions of the
will (title page, executor(s)' powers, asset distribution); or (b) estate
distribution documents.
ATTORNEY-IN-FACT -- Current power of attorney.
CORPORATION/PARTNERSHIP -- Corporate resolution(s) or other evidence of
authority to act. Partnership should furnish copy of the partnership
agreement.
TRUST/PENSION PLANS -- Unless the trustee(s) are named in the registration,
a copy of the cover page of the trust or pension plan, along with a copy of
the section(s) setting forth names and powers of trustee(s) and any
amendments to such sections or appointment of successor trustee(s).
4. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. If consideration is to be issued
in the name of a person other than the person signing the Signature Box of
the Letter of Transmittal or if consideration is to be sent to someone
other than such signer or to an address other than that set forth on the
Letter of Transmittal in the box entitled "Description of Units Tendered,"
the appropriate boxes on the Letter of Transmittal should be completed.
5. TAX CERTIFICATIONS. The Limited Partner(s) tendering Units to the Purchaser
pursuant to the Offer must furnish the Purchaser with the Limited Partner's
taxpayer identification number ("TIN") and certify as true, under penalties
of perjury, the representations in Box A, Box B and, if applicable, Box C.
By signing the Signature Box, the Limited Partner(s) certifies that the TIN
as printed (or corrected) on this Letter of Transmittal in the box entitled
"Description of Units Tendered" and the representations made in Box A, Box
B and, if applicable, Box C, are correct. See attached Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9 for
guidance in determining the proper TIN to give the Purchaser.
U.S. PERSONS. A limited partner that is a U.S. citizen or a resident alien
individual, a domestic corporation, a domestic partnership, a domestic
trust or a domestic estate (collectively, "U.S. Persons"), as those terms
are defined in the Code, should follow the instructions below with respect
to certifying Box A and Box B.
BOX A -- SUBSTITUTE FORM W-9.
Part (i), Taxpayer Identification Number -- Tendering limited partners must
certify to the Purchaser that the TIN as printed (or corrected) on this
Letter of Transmittal in the box entitled "Description of Units Tendered"
is correct. If a correct TIN is not provided, penalties may be imposed by
the Internal Revenue Service (the "IRS"), in addition to the limited
partner being subject to backup withholding.
Part (ii), Backup Withholding -- In order to avoid 31% Federal income tax
backup withholding, the tendering limited partner must certify, under
penalties of perjury, that such limited partner is not subject to backup
withholding. Certain limited partners (including, among others, all
corporations and certain exempt non-profit organizations) are not subject
to backup withholding. Backup withholding is not an additional tax. If
withholding results in an overpayment of taxes, a refund may be obtained
from the IRS. DO NOT CHECK THE BOX IN BOX A, PART (II), UNLESS YOU HAVE
BEEN NOTIFIED BY THE IRS THAT YOU ARE SUBJECT TO BACKUP WITHHOLDING.
When determining the TIN to be furnished, please refer to the following as
a guide:
Individual accounts -- should reflect owner's TIN.
Joint accounts -- should reflect the TIN of the owner whose name appears
first.
Trust accounts -- should reflect the TIN assigned to the trust.
IRA custodial accounts -- should reflect the TIN of the custodian (not
necessary to provide). Custodial accounts for the benefit of
minors -- should reflect the TIN of the minor. Corporations, partnership or
other business entities -- should reflect the TIN assigned to that entity.
By signing the Signature Box, the limited partner(s) certifies that the TIN
as printed (or corrected) on the front of the Letter of Transmittal is
correct.
BOX B -- FIRPTA AFFIDAVIT -- Section 1445 of the Code requires that each
limited partner transferring interests in a partnership with real estate
assets meeting certain criteria certify under penalty of perjury the
representations made in Box B, or be subject to withholding of tax equal to
10% of the purchase price
<PAGE> 11
\for interests purchased. Tax withheld under Section 1445 of the Code is
not an additional tax. If withholding results in an overpayment of tax, a
refund may be obtained from the IRS. PART (I) SHOULD BE CHECKED ONLY IF THE
TENDERING LIMITED PARTNER IS NOT A U.S. PERSON, AS DESCRIBED THEREIN.
BOX C -- FOREIGN PERSONS -- In order for a tendering Limited Partner who is
a Foreign Person (i.e., not a U.S. Person, as defined above) to qualify as
exempt from 31% backup withholding, such foreign Limited Partner must
certify, under penalties of perjury, the statement in Box C of this Letter
of Transmittal, attesting to that Foreign Person's status by checking the
box preceding such statement. UNLESS THE BOX IS CHECKED, SUCH LIMITED
PARTNER WILL BE SUBJECT TO 31% WITHHOLDING OF TAX.
6. CONDITIONAL TENDERS. No alternative, conditional or contingent tenders will
be accepted.
7. VALIDITY OF LETTER OF TRANSMITTAL. All questions as to the validity, form,
eligibility (including time of receipt) and acceptance of a Letter of
Transmittal and other required documents will be determined by the
Purchaser and such determination will be final and binding. The Purchaser's
interpretation of the terms and conditions of the Offer (including these
Instructions for this Letter of Transmittal) will be final and binding. The
Purchaser will have the right to waive any irregularities or conditions as
to the manner of tendering. Any irregularities in connection with tenders,
unless waived, must be cured within such time as the Purchaser shall
determine. This Letter of Transmittal will not be valid until any
irregularities have been cured or waived. Neither the Purchaser nor the
Information Agent are under any duty to give notification of defects in a
Letter of Transmittal and will incur no liability for failure to give such
notification.
8. ASSIGNEE STATUS. Assignees must provide documentation to the Information
Agent which demonstrates, to the satisfaction of the Purchaser, such
person's status as an assignee.
9. TRANSFER TAXES. The amount of any transfer taxes (whether imposed on the
registered holder or any person other than the person signing the Letter of
Transmittal) payable on account of the transfer to such person will be
deducted from the purchase price unless satisfactory evidence of the
payment of such taxes or exemption therefrom is submitted.
10. MINIMUM TENDERS. A limited partner may tender any or all of his, her or its
Units; provided, however, that because of restrictions in the Partnership's
Limited Partnership Agreement, a partial tender of Units must be for a
minimum of [ ] Units (other than limited partners who hold Units in an
Individual Retirement Account or Keogh Plan). Tenders of fractional Units
will be permitted only by a limited partner who is tendering all Units
owned by that limited partner.
11. CONDITIONAL TENDERS. No alternative, conditional or contingent tenders will
be accepted.
<PAGE> 12
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE
PAYER. -- Social Security numbers have nine digits separated by two hyphens:
i.e. 000-00-0000. Employer identification numbers have nine digits separated by
only one hyphen: i.e. 00-0000000. The table below will help determine the number
to give the payer.
- ---------------------------------------------------------
---------------------------------------------------------
<TABLE>
<CAPTION>
FOR THIS TYPE OF ACCOUNT: GIVE THE
TAXPAYER
IDENTIFICATION
NUMBER OF --
- ---------------------------------------------------------
FOR THIS TYPE OF ACCOUNT: GIVE THE
TAXPAYER
IDENTIFICATION
NUMBER OF --
- ---------------------------------------------------------
<C> <S> <C>
1. An individual account The individual
2. Two or more individuals The actual owner of
(joint account) the account or, if
combined funds, the
first individual on
the account
3. Husband and wife (joint The actual owner of
account) the account or, if
joint funds, either
person
4. Custodian account of a minor The minor(2)
(Uniform Gift to Minors Act)
5. Adult and minor (joint The adult or, if the
account) minor is the only
contributor, the
minor(1)
6. Account in the name of The ward, minor, or
guardian or committee for a incompetent person(3)
designated ward, minor, or
incompetent person(3)
7. a The usual revocable The grantor trustee(1)
savings trust account
(grantor is also trustee)
b So-called trust account The actual owner(1)
that is not a legal or
valid trust under state
law
8. Sole proprietorship account The owner(4)
9. A valid trust, estate or The legal entity (Do
pension trust not furnish the
identifying number of
the personal
representative or
trustee unless the
legal entity itself is
not designated in the
account title.)(5)
10. Corporate account The corporation
11. Religious, charitable, or The organization
educational organization
account
12. Partnership account held in The partnership
the name of the business
13. Association, club, or other The organization
tax-exempt organization
14. A broker or registered The broker or nominee
nominee
15. Account with the Department The public entity
of Agriculture in the name
of a public entity (such as
a State or local government,
school district, or prison)
that receives agricultural
program payments
</TABLE>
- ---------------------------------------------------------
---------------------------------------------------------
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Circle the ward's or incompetent person's name and furnish such person's
social security number or employer identification number.
(4) Show your individual name. You may also enter your business name. You may
use your social security number or employer identification number.
(5) List first and circle the name of the legal trust, estate, or pension trust.
NOTE:If no name is circled when there is more than one name, the number will be
considered to be that of the first name listed.
<PAGE> 13
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
PAGE 2
OBTAINING A NUMBER
If you do not have a taxpayer identification number or you do not know your
number, obtain Form SS-5, Application for a Social Security Number Card (for
individuals), or Form SS-4, Application for Employer Identification Number (for
businesses and all other entities), at the local office of the Social Security
Administration or the Internal Revenue Service and apply for a number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup withholding on ALL payments include the
following:
- A corporation.
- A financial institution.
- An organization exempt from tax under section 501(a) of the Internal Revenue
Code of 1986, as amended (the "Code"), or an individual retirement plan.
- The United States or any agency or instrumentality thereof.
- A State, the District of Columbia, a possession of the United States, or any
subdivision or instrumentality thereof.
- A foreign government, a political subdivision of a foreign government, or any
agency or instrumentality thereof.
- An international organization or any agency, or instrumentality thereof.
- A registered dealer in securities or commodities registered in the U.S. or a
possession of the U.S.
- A real estate investment trust.
- A common trust fund operated by a bank under section 584(a) of the Code.
- An exempt charitable remainder trust, or a non-exempt trust described in
section 4947(a)(1).
- An entity registered at all times under the Investment Company Act of 1940.
- A foreign central bank of issue.
- A futures commission merchant registered with the Commodity Futures Trading
Commission.
Payments of dividends and patronage dividends not generally subject to backup
withholding include the following:
- Payments to nonresident aliens subject to withholding under section 1441 of
the Code.
- Payments to partnerships not engaged in a trade or business in the U.S. and
which have at least one nonresident partner.
- Payments of patronage dividends where the amount received is not paid in
money.
- Payments made by certain foreign organizations.
- Payments made to an appropriate nominee.
- Section 404(k) payments made by an ESOP.
Payments of interest not generally subject to backup withholding include the
following:
- Payments of interest on obligations issued by individuals.
Note: You may be subject to backup withholding if this interest is $600 or more
and is paid in the course of the payer's trade or business and you have not
provided your correct taxpayer identification number to the payer.
- Payments of tax-exempt interest (including exempt interest dividends under
section 852 of the Code).
- Payments described in section 6049(b)(5) to nonresident aliens.
- Payments on tax-free covenant bonds under section 1451 of the Code.
- Payments made by certain foreign organizations.
- Payments of mortgage interest to you.
- Payments made to an appropriate nominee.
Exempt payees described above should file Form W-9 to avoid possible erroneous
backup withholding. FILE THIS FORM WITH THE PAYER. FURNISH YOUR TAXPAYER
IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, AND RETURN IT TO
THE PAYER. IF THE PAYMENTS ARE INTEREST, DIVIDENDS, OR PATRONAGE DIVIDENDS, ALSO
SIGN AND DATE THE FORM. IF YOU ARE A NONRESIDENT ALIEN OR A FOREIGN ENTITY NOT
SUBJECT TO BACKUP WITHHOLDING, FILE WITH PAYER A COMPLETED INTERNAL REVENUE FORM
W-8 (CERTIFICATE OF FOREIGN STATUS).
Certain payments other than interest, dividends, and patronage dividends, that
are not subject to information reporting are also not subject to backup
withholding. For details, see the regulations under sections 6041, 6041A(A),
6045, and 6050A.
PRIVACY ACT NOTICE. -- Section 6109 requires most recipients of dividend,
interest, or other payments to give correct taxpayer identification numbers to
payers who must report the payments to the IRS. The IRS uses the numbers for
identification purposes. Payers must be given the numbers whether or not
recipients are required to file a tax return. Payers must generally withhold 31%
of taxable interest, dividend, and certain other payments to a payee who does
not furnish a correct taxpayer identification number to a payer. Certain
penalties may also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER. -- If you
fail to furnish your correct taxpayer identification number to a payer, you are
subject to a penalty of $50 for each such failure unless your failure is due to
reasonable cause and not to willful neglect.
(2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING. -- If you
make a false statement with no reasonable basis that results in no imposition of
backup withholding, you are subject to a penalty of $500.
(3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION. -- Willfully falsifying
certifications or affirmations may subject you to criminal penalties including
fines and/or imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX
CONSULTANT OR THE INTERNAL REVENUE SERVICE
<PAGE> 14
The Information Agent for the offer is:
River Oaks Partnership Services, Inc.
By Mail:
P.O. Box 2065
S. Hackensack, N.J. 07606-2065
By Overnight Courier:
111 Commerce Road
Carlstadt, N.J. 07072
Attn.: Reorganization Dept.
By Hand:
111 Commerce Road
Carlstadt, N.J. 07072
Attn.: Reorganization Dept.
By Telephone:
Toll Free (818) 349-2005
or
(201) 896-1900
By Fax:
(201) 896-0910
<PAGE> 1
EXHIBIT 99.16
Agreement Regarding Disclosure of Long-Term Debt Instruments
In reliance upon Item 601(b)(4)(iii)(A), of Regulation S-K, AIMCO
Properties, L.P., a Delaware limited partnership (the "Partnership") has not
filed as an exhibit to its Registration Statement on Form S-4 (File number
333-60355), any instrument with respect to long-term debt not being registered
where the total amount of securities authorized thereunder does not exceed 10
percent of the total assets of the Partnership and its subsidiaries on a
consolidated basis. Pursuant to Item 601(b)(4)(iii)(A), of Regulation S-K, the
Partnership hereby agrees to furnish a copy of any such agreements to the
Securities Exchange Commission upon request.
AIMCO PROPERTIES, L.P.
By: AIMCO-GP, Inc.
its General Partner
By: /s/ PETER KOMPANIEZ
--------------------------
Peter Kompaniez
President
