<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 4, 1998
FILE NO.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR 12(g) OF THE
SECURITIES EXCHANGE ACT OF 1934
---------------------
AIMCO PROPERTIES, L.P.
(Exact Name of Registrant as
Specified in Its Charter)
<TABLE>
<S> <C>
DELAWARE 84-1275621
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1873 SOUTH BELLAIRE STREET
SUITE 1700
DENVER, COLORADO 80222-4348
(Address of Principal (Zip Code)
Executive Offices)
</TABLE>
---------------------
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (303) 757-8101
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<S> <C>
NOT APPLICABLE NOT APPLICABLE
(Title of each class (Name of each exchange on which
to be so registered) each class to be registered)
</TABLE>
---------------------
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
PARTNERSHIP COMMON UNITS
(Title of class)
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- --------------------------------------------------------------------------------
<PAGE> 2
Certain statements in this registration statement (the "Registration
Statement") contain or may contain information that is forward-looking,
including, without limitation: statements regarding the effect of acquisitions,
the future financial performance of AIMCO Properties, L.P., a Delaware limited
partnership (the "Partnership" and, together with AIMCO (as defined below),
consolidated entities and majority-owned subsidiaries, the "Company"), and
Apartment Investment and Management Company, a Maryland corporation which
controls the Partnership ("AIMCO"), the ability of AIMCO to qualify as a real
estate investment trust (a "REIT"), which involves the application of highly
technical and complex provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), and the effect of government regulations. Actual results
may differ materially from those described in the forward-looking statements and
will be affected by a variety of risks and factors including, without
limitation, national and local economic conditions, the general level of
interest rates, terms of governmental regulations that affect the Company and
interpretations of those regulations, the competitive environment in which the
Company operates, financing risks, including the risk that the Company's cash
flows from operations may be insufficient to meet required payments of principal
and interest, real estate risks, including variations of real estate values and
the general economic climate in local markets and competition for tenants in
such markets, acquisition and development risks, including failure of such
acquisitions to perform in accordance with projections, and possible
environmental liabilities, including costs which may be incurred due to
necessary remediation of contamination of properties presently owned or
previously owned by the Company. Readers should carefully review this
Registration Statement in its entirety, including but not limited to the
Company's financial statements and the notes thereto.
ITEM 1. BUSINESS.
OVERVIEW
The Partnership is a Delaware 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 "Act"), engaged in the
ownership, acquisition, development, expansion, and management of multi-family
apartment properties. The term of the Partnership commenced on May 16, 1994, and
will continue until December 31, 2093, unless the Partnership is dissolved
sooner pursuant to the provisions of the Agreement or as otherwise provided by
the Act. AIMCO-GP, Inc., a Delaware corporation and a wholly owned subsidiary of
AIMCO (the "General Partner"), is the sole general partner of the Partnership,
and another wholly owned subsidiary of AIMCO, AIMCO-LP, Inc., a Delaware
corporation (the "Special Limited Partner"), is a limited partner in the
Partnership. As of June 30, 1998, AIMCO held an approximate 89% interest in the
Partnership. AIMCO, which was formed on January 10, 1994, is a self-administered
and self-managed REIT which does not have any material assets or operations
other than its interest in the Partnership. 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. and its affiliated companies, and PDI Realty Enterprises,
Inc. (collectively, the "AIMCO Predecessors"). As of June 30, 1998, the Company
owned or controlled 58,345 units in 210 apartment communities (the "Owned
Properties"), held an equity interest in 74,318 units in 478 apartment
communities (the "Equity Properties"), and managed 68,248 units in 357 apartment
communities for third parties and affiliates (the "Managed Properties" and,
together with the Owned Properties and Equity Properties, the "AIMCO
Properties"), bringing the total owned and managed portfolio to 200,911 units in
1,045 apartment communities. By virtue of its aggregate 89% interest in the
Partnership and its control of the General Partner, AIMCO has the ability to
control all of the day-to-day operations of the Partnership. Moreover, by virtue
of its ownership interest in the Partnership and the General Partner, AIMCO is
able to approve amendments to the Second Amended and Restated Agreement of
Limited Partnership, dated July 29, 1994 (the "Partnership Agreement"), without
the approval of any other limited partners of the Partnership, except for
certain amendments that require the approval of all of the limited partners. See
"Item 11 -- Description of Registrant's Securities to be Registered -- Amendment
of the Agreement."
The AIMCO Properties are located in 42 states, the District of Columbia and
Puerto Rico. The Partnership's principal executive offices are located at 1873
South Bellaire Street, Suite 1700, Denver, Colorado 80222, and its telephone
number is (303) 757-8101.
1
<PAGE> 3
1998 DEVELOPMENTS
Ambassador Apartments Acquisition
On May 8, 1998, Ambassador Apartments, Inc. ("Ambassador"), a
self-administered and self-managed REIT engaged in the ownership and management
of garden-style apartment properties leased primarily to middle income tenants,
merged with and into AIMCO, with AIMCO being the surviving corporation (the
"Ambassador Merger"). Pursuant to the Ambassador Merger, all outstanding shares
of Ambassador Common Stock were converted into shares of AIMCO Class A Common
Stock, par value $0.01 per share (the "Class A Common Stock"), at a conversion
ratio of 0.553 shares of Class A Common Stock per share of Ambassador Common
Stock, resulting in the issuance of 6,578,833 shares of Class A Common Stock.
Concurrently, all outstanding options to purchase Ambassador Common Stock were
converted into options to purchase Class A Common Stock, at the same conversion
ratio, or cash.
Contemporaneously with the consummation of the Ambassador Merger, AIMCO
MergerSub, L.P., a Delaware limited partnership and 99.9% owned subsidiary
partnership of the Partnership ("MergerSub"), merged with and into Ambassador
Apartments, L.P. (the "Ambassador Operating Partnership") with the Ambassador
Operating Partnership surviving (the "OP Merger"), and each outstanding unit of
limited partnership interest in the Ambassador Operating Partnership was
converted into the right to receive 0.553 Partnership Common Units ("OP Units")
of the Partnership. As a result of the OP Merger, the Ambassador Operating
Partnership became a 99.9%-owned subsidiary of the Company.
As of the consummation of the Ambassador Merger, 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.
Pending Acquisitions
Insignia Merger
AIMCO and the Partnership have entered into a merger agreement (the
"Insignia Merger Agreement") with Insignia Financial Group, Inc. ("Insignia")
and Insignia/ESG Holdings, Inc. ("Holdings") pursuant to which Insignia will be
merged into AIMCO (the "Insignia Merger"). Insignia is a fully integrated real
estate services organization specializing in the ownership and operation of
securitized real estate assets. Insignia is the largest manager of multifamily
residential properties in the United States according to the 1998 National Multi
Housing Counsel 50 Report published in March 1998 and one of the largest brokers
and managers of commercial properties according to the Commercial Property News
dated January 1, 1998. Insignia performs property management, asset management,
investor services, partnership accounting, real estate investment banking, and
real estate brokerage services for various types of property owners, including
approximately 900 limited partnerships having approximately 350,000 limited
partners. Insignia provides property management services for approximately
192,000 multifamily units, consisting of 115,000 units which are controlled by
Insignia and 77,000 units owned by third parties. The Insignia Merger is subject
to approval by Insignia's stockholders and other customary conditions. It is
expected that the Insignia Merger, if approved, would be completed in October of
1998.
At the time of the Insignia Merger, Insignia will consist principally of:
(i) Insignia's interests in Insignia Properties Trust, a Maryland REIT, which is
a majority owned subsidiary of Insignia ("IPT"), and Insignia Properties, L.P.,
IPT's operating partnership ("IPLP"); (ii) 100% of the ownership of the Insignia
entities that provide multifamily property management and partnership
administrative services; (iii) Insignia's interest in multifamily coinvestments;
(iv) Insignia's ownership of subsidiaries that control multifamily properties
not included in IPT; (v) Insignia's limited partner interests in public and
private syndicated real estate limited partnerships; and (vi) assets incidental
to the foregoing businesses (collectively, the "Insignia Multifamily Business").
Prior to the Insignia Merger, the remaining businesses of Insignia will be
transferred to Holdings and all of the capital stock of Holdings will be
distributed to Insignia's stockholders (the "Distribution").
If the Insignia Merger is approved by the stockholders of AIMCO, the
outstanding shares of Insignia's Common Stock will be converted into the right
to receive, in the aggregate, a number of shares of AIMCO's
2
<PAGE> 4
Class E Cumulative Convertible Preferred Stock, par value $.01 per share (the
"Class E Preferred Stock"), approximately equal to $303 million divided by the
AIMCO Index Price (as defined below) or, in certain cases, cash which AIMCO, in
its sole discretion, may elect to pay if the AIMCO Index Price is less than
$36.50 (the "Merger Consideration"). In addition to receiving the same dividends
as holders of shares of AIMCO's Class A Common Stock, par value $.01 per share
(the "Class A Common Stock"), holders of Class E Preferred Stock as of the
record date for payment to be set by the AIMCO Board of Directors will be
entitled to receive a special dividend of $50 million in the aggregate (the
"Special Dividend"). When the Special Dividend is paid in full, each share of
Class E Preferred Stock will automatically convert into one share of Class A
Common Stock (subject to certain antidilution adjustments). In addition,
approximately $458 million in outstanding debt and other liabilities of Insignia
and its subsidiaries will become obligations of AIMCO and its subsidiaries after
the Insignia Merger. The "AIMCO Index Price" is defined as the average market
price of Class A Common Stock during a fixed period prior to the Insignia
Merger, subject to a maximum average price of $38.00 per share. The AIMCO Index
Price is not intended to and will not necessarily represent the fair market
value of Class E Preferred Stock and Class F Preferred Stock (as defined below).
If the stockholders of AIMCO do not approve the Insignia Merger, the
Insignia Merger will nonetheless be consummated assuming all other conditions
thereto are satisfied or waived. In such event, AIMCO will issue to holders of
shares of Insignia Common Stock, in the aggregate, a number of shares of Class E
Preferred Stock approximately equal to $203 million divided by the AIMCO Index
Price and a number of shares of AIMCO's Class F Cumulative Convertible Preferred
Stock, par value $.01 per share (the "Class F Preferred Stock"), approximately
equal to $100 million divided by the AIMCO Index Price in lieu of approximately
$303 million of Class E Preferred Stock. In either case, holders of Class E
Preferred Stock will be entitled to the Special Dividend on the record date for
payment to be set by the AIMCO Board of Directors. When the Special Dividend is
paid in full, each share of Class E Preferred Stock will automatically convert
into one share of Class A Common Stock (subject to certain antidilution
adjustments). If and when approved by stockholders of AIMCO, each share of Class
F Preferred Stock will convert into one share of Class A Common Stock (subject
to certain antidilution adjustments). For a description of the terms of the
Class E Preferred Stock and the Class F Preferred Stock, see "Description of
Registrant's Securities to be Registered -- AIMCO Stock."
As of the date hereof, Insignia and its subsidiaries own approximately 61%
of the outstanding shares of beneficial interest, par value $.01 per share, of
IPT ("IPT Shares"). The Insignia Merger Agreement requires AIMCO to propose to
acquire (by merger) all of the IPT Shares not owned by Insignia and its
subsidiaries, and to use its reasonable best efforts to consummate such merger
within three months following the completion of the Insignia Merger (the
"Effective Time") at a purchase price of not less than $13.25 per IPT Share,
payable in cash. Assuming a price of $13.25 per IPT Share, the remaining 39% of
IPT, owned principally by private investors and certain executives of Insignia,
is valued at approximately $100 million. In addition, IPT is party to a merger
agreement with Angeles Mortgage Investment Trust ("AMIT"), which, if approved by
AMIT's stockholders and consummated, will result in the issuance of additional
IPT Shares equal to approximately 16% of the outstanding IPT Shares and,
assuming consummation of the acquisition of IPT by AIMCO, the payment by AIMCO
in a merger with IPT of an additional approximately $51.3 million at an assumed
price of $13.25 per IPT Share.
In connection with the Insignia Merger Agreement, the Partnership entered
into an asset purchase agreement (the "MAE Agreement") with Metropolitan Asset
Enhancement, L.P. and CRPTEX II, Inc. (the "MAE Sellers"), which are entities
controlled by Andrew L. Farkas, Insignia's Chairman, President and Chief
Executive Officer. The MAE Agreement provides that the Partnership will purchase
all the outstanding general partner and limited partner interests in MAE-SPI
L.P. from the MAE Sellers for $1 million in cash to be delivered at the closing,
which will be contemporaneous with the closing of Insignia Merger. Consummation
of the Distribution and the Insignia Merger are conditions to the closing of
this transaction.
In connection with the Insignia Merger Agreement, AIMCO entered into Call
Option, Put Option and Purchase Price Adjustment Agreements (the "Call
Agreements") with certain executive officers of Insignia and certain entities
controlled by Mr. Farkas (collectively, the "Insignia Principals"). The Call
Agreements
3
<PAGE> 5
provide that if the Insignia Merger Agreement is terminated for certain reasons,
AIMCO will have the right to purchase shares of Insignia Common Stock and IPT
Shares from the Insignia Principals. If the Insignia Merger Agreement is
terminated for certain other reasons, each Insignia Principal will have the
right to cause AIMCO to purchase its Insignia Common Stock and IPT Shares.
Other 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 August 16, 1998, the Company had under contract or letter of
intent an aggregate of 62 multi-family apartment properties with a maximum
aggregate purchase price of approximately $826 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 Funds From Operations ("FFO") on a per unit basis.
Individual Property Acquisitions
During the period from January 1, 1998 through August 10, 1998, the Company
has purchased fifteen apartment communities containing 3,553 apartment units, as
described below:
<TABLE>
<CAPTION>
NUMBER
DATE ACQUIRED PROPERTY LOCATION OF UNITS
- ------------- -------- -------- --------
<S> <C> <C> <C>
1/98.................................... Crossings at Amarillo, TX 160
Bell
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, CA 334
Escondido
-----
3,553
=====
</TABLE>
The Company paid aggregate consideration of $138.0 million for these
properties, consisting of $39.8 million in cash, 802,796 OP Units valued at
$27.3 million and the assumption of $70.9 million of secured long-term
indebtedness. The cash portions of the acquisitions were funded with borrowings
under the Company's revolving credit facilities.
Property Dispositions
In January 1998, the Company sold the Sun Valley Apartments, an apartment
community containing 430 apartment units located in Salt Lake City, Utah, for
$11.5 million, less selling costs of $0.3 million. The
4
<PAGE> 6
Company recognized a $3.3 million gain on the sale. As of June 30, 1998, the
Company's management has indicated its intent to sell the Rillito Village and
Village Park properties.
1997 DEVELOPMENTS
NHP Acquisition
On December 8, 1997, AIMCO completed the acquisition by merger (the "NHP
Merger") of NHP Incorporated, a Delaware corporation ("NHP"). The consideration
issued in the NHP Merger to former NHP stockholders consisted of approximately
4.6 million shares of AIMCO Class A Common Stock and $0.3 million in cash. The
Company had previously acquired an aggregate of 6,930,122 shares of NHP Common
Stock, representing approximately 53.3% of the shares outstanding as of
September 30, 1997. The total consideration paid for all shares of NHP totaled
$349.5 million, which included cash payments of $86.5 million and the issuance
of 6.8 million shares of AIMCO Class A Common Stock. NHP was primarily involved
in the business of providing real estate property management and asset
management services. As of September 30, 1997, NHP's management portfolio (which
is included in the AIMCO Properties) included 732 properties containing 79,208
conventional units and 55,102 "affordable" units (units benefitting from some
form of interest rate or rental subsidy or otherwise subject to governmental
programs aimed at providing low and moderate income housing) located in 38
states, the District of Columbia and Puerto Rico. Immediately following the NHP
Merger, AIMCO restructured the assets and operations of NHP (the "NHP
Reorganization"), resulting in (i) the liquidation of NHP and the transfer of
its assets and liabilities to AIMCO, (ii) the reorganization and
recapitalization of NHP's primary subsidiary, NHP Management Company, as an
unconsolidated subsidiary of the Partnership, and (iii) the transfer of 12
properties previously owned by NHP to AIMCO/NHP Partners, L.P. In addition,
pursuant to rights distributed to NHP stockholders in May 1997, on December 8,
1997, all of the outstanding shares of NHP's mortgage banking subsidiary, The
WMF Group, Ltd., were distributed to former NHP stockholders. As a result of the
NHP Reorganization, the former operations of NHP are now primarily conducted
through unconsolidated subsidiaries of the Partnership (the "Unconsolidated
Subsidiaries").
In June 1997, AIMCO acquired a group of companies (the "NHP Real Estate
Companies") previously owned by NHP that hold interests in partnerships (the
"NHP Partnerships") that own 534 conventional and affordable multifamily
apartment properties (the "NHP Properties") containing 87,659 units, a captive
insurance subsidiary and certain related assets (the "NHP Real Estate
Acquisition" and, together with the NHP Merger and the NHP Stock Purchase, the
"NHP Acquisition"). The NHP Properties are included in the AIMCO Properties
described above. AIMCO is currently engaged in a reorganization (the "NHP Real
Estate Reorganization") of its interests in the NHP Real Estate Companies, which
will result in a substantial majority of the assets of the NHP Real Estate
Companies being owned by a limited partnership (the "Unconsolidated
Partnership") in which the Company holds a 99% limited partner interest and
certain directors and officers of AIMCO, directly or indirectly, hold a 1%
general partner interest.
Individual Property Acquisitions
During the year ended December 31, 1997, the Company purchased or acquired
control of 59 properties (including 15 NHP Properties) consisting of 17,191
apartment units. The cash portion of the purchase price for the acquisitions was
funded with proceeds from equity offerings by AIMCO (which were contributed to
the Company in exchange for OP Units or Partnership Preferred Units of the
Partnership ("Preferred Units" and, together with the OP Units, "Partnership
Units")), borrowings under the Company's revolving credit facility, other
short-term and long-term financings, or with working capital.
Property Dispositions
In October 1997, the Company sold the Meadowbrook, Ashwood, Parkside,
Chimney Ridge and Cobble Creek apartment properties, which consisted of an
aggregate of 916 units located in Texas and Arizona, to an unaffiliated third
party. Cash proceeds from the sale of approximately $22.7 million were used to
repay a portion of the Company's outstanding short-term indebtedness. The
Company recognized a gain of approximately $2.8 million on the disposition of
these five properties.
5
<PAGE> 7
DEBT ASSUMPTIONS AND FINANCINGS
Secured Notes Payable
The following table summarizes the Company's secured notes payable as of
June 30, 1998 and December 31, 1997, all of which are non-recourse to the
Company (dollars in thousands):
<TABLE>
<CAPTION>
JUNE 30, 1998 DECEMBER 31, 1997
------------- -----------------
<S> <C> <C>
Fixed rate, fully-amortizing notes...................... $653,423 $561,056
Fixed rate, non-amortizing notes........................ 84,096 106,424
Floating rate, non-amortizing notes..................... 13,818 13,941
-------- --------
Total......................................... $751,337 $681,421
======== ========
</TABLE>
Secured Tax-Exempt Bond Financing
The following table summarizes the Company's secured tax-exempt bond
financing at June 30, 1998 and December 31, 1997 (dollars in thousands):
<TABLE>
<CAPTION>
JUNE 30, 1998 DECEMBER 31, 1997
------------- -----------------
<S> <C> <C>
Fixed rate, fully-amortizing bonds...................... $ 55,302 $ 56,027
Fixed rate, non-amortizing bonds........................ 17,823 17,983
Floating rate, fully-amortizing bonds................... 289,824 --
Floating rate, non-amortizing bonds..................... 31,713 --
-------- --------
Total......................................... $394,662 $ 74,010
======== ========
</TABLE>
Secured and Unsecured Short-Term Financing
The Company utilizes a variety of secured short-term financing instruments
to manage its working capital needs and to fund real estate investments,
including variable rate revolving credit facilities, as well as various fixed
and floating rate term loans.
In January 1998, the Company replaced its $100 million revolving credit
facility with Bank of America National Trust and Savings Association ("Bank of
America") with a new unsecured $50 million revolving credit facility with Bank
of America and BankBoston, N.A. (the "BOA Credit Facility"). The Partnership is
the borrower under the BOA Credit Facility, and 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
ranges between 0.6% and 1.0% in the case of LIBOR-based loans and between 0.0%
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 availability of funds to the
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 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 holders of OP Units,
imposes minimum net worth requirements and provides other financial covenants
related to certain unencumbered assets. 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 plus a margin of
0.0% to 0.5%. The additional borrowing capacity was used to facilitate the
closing of the Ambassador Merger and will be further
6
<PAGE> 8
utilized to complete the Insignia Merger. The Company had outstanding borrowings
under the BOA Credit Facility of $118.5 million as of June 30, 1998.
In February 1998, the Partnership, as borrower, and AIMCO and certain
single asset wholly-owned subsidiaries of the Company (the "Owners"), as
guarantors, entered into a five year, $50 million secured credit facility
agreement (the "WMF Credit Facility") with Washington Mortgage Financial Group,
Ltd. ("Washington Mortgage"), which provides for the conversion of all or a
portion of such revolving credit facility to a base loan facility. The WMF
Credit Facility provides that all the rights of Washington Mortgage are assigned
to the Federal National Mortgage Association ("FNMA"), but FNMA does not assume
Washington Mortgage's obligations under the WMF Credit Facility. At the
Partnership's request, the commitment amount may be increased to an amount not
to exceed $250 million, subject to the consent of Washington Mortgage and FNMA
in their sole and absolute discretion. The 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 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
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 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 145% for the Trailing
12 Month Period (as defined in the WMF Credit Facility) and 135% for the
Trailing Three Month Period (as defined in the WMF Credit Facility), imposes
minimum net worth requirements and also provides other financial covenants and
interest coverage ratio requirements that are specifically related to the
collateral. The WMF Credit Facility was fully utilized as of June 30, 1998.
Interest Rate Lock Agreements
From time to time, the Company 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 Company 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 Company 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.
In September 1997, the Company entered into an interest rate lock agreement
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.
Interest Rate Swap Agreements
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,
7
<PAGE> 9
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 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.
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.
EQUITY OFFERINGS BY AIMCO
From time to time, AIMCO issues shares of Class A Common Stock or shares of
its Preferred Stock, par value $.01 per share ("Preferred Stock") (hereinafter
sometimes referred to as, collectively or individually, "AIMCO Stock"). The
Partnership Agreement requires that, whenever AIMCO issues shares of its Class A
Common Stock or Preferred Stock, the proceeds from such issuance are contributed
to the Partnership in exchange for equal numbers of OP Units or Preferred Units,
respectively. The proceeds received by the Partnership are then generally used
to repay indebtedness under the Partnership's credit facilities or to fund other
cash needs. In 1997, AIMCO issued 16.4 million shares of Class A Common Stock
(exclusive of shares issued in the NHP Acquisition) and 3.2 million shares of
Preferred Stock, for an aggregate of $513 million and $135 million,
respectively, the proceeds of which were contributed to the Partnership for 16.4
million OP Units and 3.2 million Preferred Units, respectively. During the
period from January 1, 1998 through August 31, 1998, AIMCO issued 0 shares of
Class A Common Stock and 10,050,000 million shares of Preferred Stock, for an
aggregate of $247.6 million, the proceeds of which were contributed to the
Partnership for 0 OP Units and 10,050,000 million Preferred Units, respectively.
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, an interest in entities in which
the Partnership does not own any interest (the "QRSs"). AIMCO and the
Partnership have entered into a Contribution and Management Agreement (the
"Management Agreement"), pursuant to which the Partnership has acquired from
AIMCO, in exchange for interests in the Partnership, the economic benefits of
the assets owned by the QRSs, and AIMCO has granted the Partnership certain
rights with respect to the assets owned by the QRSs. Under the Management
Agreement, the 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 Partnership all dividends,
distributions and other proceeds received from the QRSs (excluding distributions
received in respect of any interests in the 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 this Registration Statement
8
<PAGE> 10
for financial information relating to the Company. Properties owned by the QRSs
and properties in which the QRSs have ownership interests are included in the
AIMCO Properties.
GROWTH STRATEGIES
The Company's primary objective is to maximize the Company's value by
increasing the amount and predictability of its FFO on a per unit basis. The
Company seeks to achieve this objective primarily by improving net operating
income from its Owned Properties and by acquiring additional properties at
values that are accretive on a per unit basis. The Partnership's operating and
financial strategies include: (i) maintaining a geographically diversified
portfolio of properties; (ii) providing a minimum of $300 per apartment unit per
year for capital replacements to maintain its properties; (iii) emphasizing
long-term, fixed rate, fully amortizing debt; and (iv) maintaining a dividend
payout ratio of less than 80% of FFO. See "Item 2 -- Financial
Information -- Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Funds From Operations."
As part of its growth strategy, the Company intends to continue to
selectively acquire real estate and interests in real estate, and to expand the
use of Partnership Units to purchase such real estate and real estate interests.
During 1997 and the six months ended June 30, 1998, the Partnership issued 1.9
million and 0.9 million OP Units, respectively, in connection with property
acquisitions. Management of the Company believes that the ability to use
Partnership Units to purchase real estate and interests in real estate is
advantageous from the Company's standpoint because sellers of such interests may
be able to defer recognition of taxable gain on such sales if they receive
Partnership Units as consideration, thereby making such transactions more
attractive to sellers than sales that result in an immediate recognition of
taxable gain. Accordingly, subject to their fiduciary duties to the limited
partners of partnerships in which it may have an interest, management intends to
increase significantly the use of Partnership Units to purchase real estate and
interests in real estate in the future.
Acquisitions
During 1997, the Company directly acquired 44 apartment properties
containing 11,706 units for total consideration of $467.4 million, consisting of
$191.0 million in cash, approximately 1.9 million OP Units valued at $56.0
million and the assumption or incurrence of $220.4 million of indebtedness. In
addition, the Company acquired a controlling interest in 15 partnerships which
own 5,285 units located in 15 apartment communities as a result of the
acquisition of the NHP Real Estate Companies, subsequent tender offers made to
investors in certain NHP Partnerships, and the purchase of mortgage debt and
land leases. As a result of these transactions, the Company increased the number
of apartment units it owned or controlled to 40,039 units as of December 31,
1997, a net increase of approximately 68% from the 23,764 units number of units
owned or controlled as of December 31, 1996. The Company subsequently increased
its ownership or control to 58,345 units in 210 properties as of June 30, 1998.
The Company intends to continue to expand its portfolio of Owned Properties
by: (i) acquiring properties in markets which management determines are
attractive; (ii) developing and expanding its Owned Properties; and (iii)
acquiring controlling interests in companies that own or manage multi-family
properties.
Managed Properties
The Company believes its property management operations are integral to its
overall business strategy. The economies of scale realized from managing more
than 200,000 apartment units enable the Company to operate its properties more
efficiently. In addition, the Company believes that managing properties for
third parties improves the performance of its Owned Properties by subjecting
property managers to market-based pricing and service standards. The Company's
property management operations also support the Company's acquisition activities
by enhancing its ability to identify and evaluate acquisition and development
opportunities in its markets. The Company's local and regional personnel
maintain first-hand knowledge of local market conditions and often obtain early
notification of Managed Properties and other properties that may be offered for
sale.
9
<PAGE> 11
Redevelopment and Expansion Properties
The Company has a cautious strategy concerning new development of
properties and intends to develop properties only in situations in which it
believes it has a significant advantage. The Company believes that redevelopment
of selected properties in superior locations can provide advantages over the
development of new properties because, compared with new development,
redevelopment generally can be accomplished with relatively lower financial
risk, in less time and with reduced delays attributable to governmental approval
procedures. The Company believes that expansion within, or adjacent to, existing
properties will provide growth opportunities at lower risks than are associated
with new development, and may offer certain cost advantages to the extent common
area amenities and on-site management personnel can be utilized. The Company
generally finances redevelopment and expansion activities initially with
short-term indebtedness, and subsequently arranges permanent financing.
OPERATING STRATEGIES
Internal Growth Strategy
The Company's strategy for internal growth and to increase cash flow is to
continually: (i) seek higher net rental revenues by enhancing and maintaining
the competitiveness of properties through periodic property upgrades which
typically include cable television, selective refurbishment and the addition of
other amenities; (ii) provide a high level of service to residents; (iii) manage
expenses through a system of detailed management reporting and accountability;
and (iv) provide training programs, orientation workshops and technical courses
for on-site marketing, maintenance and management personnel.
In pursuing its internal growth strategy, the Company's policy is to: (i)
provide on-site management trained to respond promptly to residents' needs; (ii)
conduct annual resident satisfaction surveys; (iii) respond to maintenance calls
within 24 hours; and (iv) maintain the quality and appearance of its properties
with an annual provision of $300 per apartment unit for capital replacements.
Property Management
The Partnership's property management strategy is to achieve improvements
in operating results by combining centralized financial control and uniform
operating procedures with localized property management decision making and
market knowledge. The Company's operations are organized into geographically
diversified Regional Operating Centers ("ROCs"). Each ROC is served by local
offices of regional property managers and is supervised by a Regional Vice
President.
Diversified Markets
The Company seeks to operate primarily in markets: (i) where population and
employment growth rates are expected to exceed the national averages; (ii) where
it believes it can become one of the regionally significant owners and managers
of multi-family apartment properties; and (iii) that will enable the Company to
maintain a geographically diversified portfolio or otherwise gain significant
financial benefits. The distribution of the Owned Properties reflects the
Company's focus on growth markets and its belief that geographic diversification
will help to insulate the portfolio from regional and local economic
fluctuations. The Company also seeks to create concentrations of properties
within each of its markets in order to achieve economies of scale in management
and operations. The Company owns or manages apartment units in 18 principal
markets, including in excess of 5,000 apartment units in the Chicago, Dallas,
Houston, Indianapolis, New York, Philadelphia, Phoenix, Tampa and Washington,
D.C. metropolitan areas, and more than 2,000 apartment units in the Albuquerque,
Atlanta, Austin, Baltimore, Ft. Lauderdale, Norfolk, Orlando, San Antonio and
St. Louis metropolitan areas.
TAXATION ISSUES
A discussion of the taxation of both the Partnership and AIMCO is contained
in Item 11 herein, entitled "Description of Registrant's Securities to be
Registered."
10
<PAGE> 12
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.
CASH DISTRIBUTIONS
During 1996 and 1997, the Partnership made quarterly cash distributions in
the amount of $0.425 and $0.4625 per OP Unit, respectively. Thus far in 1998,
the Partnership has made two quarterly distributions in the amount of $0.5625
per OP Unit. See "Item 9 -- Market Price of and Distributions on the
Registrant's Common Units and Related Unitholder Matters." The quarterly cash
distributions paid by the Partnership to the holders of OP Units are expected to
be identical to the cash dividends paid by AIMCO to its stockholders.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1998 1997 1996
------- ------- ------
<S> <C> <C> <C>
1st Quarter................................................. $0.5625 $0.4625 $0.425
2nd Quarter................................................. $0.5625 $0.4625 $0.425
3rd Quarter................................................. -- $0.4625 $0.425
4th Quarter................................................. -- $0.4625 $0.425
</TABLE>
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.
11
<PAGE> 13
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. See "Item 2 -- Financial Information -- Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Contingencies."
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. See "Item
2 -- Financial Information -- Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Contingencies."
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 8,500
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.
12
<PAGE> 14
ITEM 2. FINANCIAL INFORMATION.
SELECTED HISTORICAL FINANCIAL DATA
The historical selected financial data for the Company for the six months
ended June 30, 1998 and 1997 is unaudited. The historical selected financial
data for the Company for the years ended December 31, 1997, 1996 and 1995, the
period July 29, 1994 (the date of inception) through December 31, 1994, 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" included herein.
<TABLE>
<CAPTION>
THE COMPANY
----------------------------------------------------------
FOR THE SIX MONTHS FOR THE YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
----------------------- --------------------------------
1998 1997 1997 1996 1995
---------- ---------- ---------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
RENTAL PROPERTY OPERATIONS:
Rental and other income........... $ 161,264 $ 79,719 $ 193,006 $100,516 $ 74,947
Property operating expenses....... (59,643) (31,160) (76,168) (38,400) (30,150)
Owned property management
expenses........................ (4,713) (2,734) (6,620) (2,746) (2,276)
Depreciation...................... (34,289) (15,046) (37,741) (19,556) (15,038)
---------- ---------- ---------- -------- --------
62,619 30,779 72,477 39,814 27,483
---------- ---------- ---------- -------- --------
SERVICE COMPANY BUSINESS:
Management fees and other
income.......................... 9,562 5,605 13,937 8,367 8,132
Management and other expenses..... (5,470) (2,643) (9,910) (5,352) (4,953)
Corporate overhead allocation..... (196) (294) (588) (590) (581)
Other assets, depreciation and
amortization.................... (3) (161) (453) (218) (168)
Owner and seller bonuses.......... -- -- -- -- --
Amortization of management company
goodwill........................ -- -- (948) (500) (428)
---------- ---------- ---------- -------- --------
3,893 2,507 2,038 1,707 2,002
Minority interests in service
company business.................. (1) (2) (10) 10 (29)
---------- ---------- ---------- -------- --------
Company's shares of income from
service company business.......... 3,892 2,505 2,028 1,717 1,973
---------- ---------- ---------- -------- --------
General and administrative
expenses.......................... (4,103) (784) (5,396) (1,512) (1,804)
Interest income..................... 11,350 1,341 8,676 523 658
Interest expense.................... (34,778) (20,604) (51,385) (24,802) (13,322)
Minority interest in other
partnerships...................... (516) (565) 1,008 (111) --
Equity in losses of unconsolidated
partnerships(c)................... (4,681) (379) (1,798) -- --
Equity in earnings of unconsolidated
subsidiaries(d)................... 5,609 (86) 4,636 -- --
Amortization of goodwill............ (3,394) (474) -- -- --
---------- ---------- ---------- -------- --------
Income from operations.............. 35,998 11,733 30,246 15,629 14,998
Gain on disposition of properties... 2,526 -- 2,720 44 --
Provision for income taxes.......... -- -- -- -- --
---------- ---------- ---------- -------- --------
Income (loss) before extraordinary
item.............................. 38,524 11,733 32,966 15,673 14,988
Extraordinary item -- early
extinguishment of debt............ -- (269) (269) -- --
---------- ---------- ---------- -------- --------
Net income (loss)................... $ 38,524 $ 11,464 $ 32,697 $ 15,673 $ 14,988
========== ========== ========== ======== ========
OTHER INFORMATION:
Total owned properties (end of
period)........................... 210 107 147 94 56
Total owned apartment units (end of
period)........................... 58,345 27,056 40,039 23,764 14,453
Units under management (end of
period)........................... 68,248 70,213 69,587 19,045 19,594
Basic earnings per OP Unit.......... $ 0.61 $ 0.53 $ 1.09 $ 1.05 $ 0.86
Diluted earnings per OP Unit........ $ 0.61 $ 0.53 $ 1.08 $ 1.04 $ 0.86
Distributions paid per OP Unit...... $ 1.125 $ 0.925 $ 1.85 $ 1.70 $ 1.66
Cash flows provided by operating
activities........................ 5,838 25,035 73,032 38,806 25,911
Cash flows used in investing
activities........................ (100,669) (108,134) (717,663) (88,144) (60,821)
Cash flows provided by (used in)
financing activities.............. 107,063 91,450 668,549 60,129 30,145
Funds from operations(e)............ 83,657 28,441 81,155 35,185 25,285
Weighted average number of OP Units
outstanding....................... 51,478 21,590 29,119 14,994 11,461
BALANCE SHEET INFORMATION:
Real estate, before accumulated
depreciation...................... $2,585,204 $1,102,073 $1,657,207 $865,222 $477,162
Real estate, net of accumulated
depreciation...................... 2,287,309 945,969 1,503,922 745,145 448,425
Total assets........................ 3,054,741 1,272,890 2,100,510 827,673 480,361
Total mortgages and notes payable... 1,314,475 644,457 808,530 522,146 268,692
Mandatorily redeemable 1994
Cumulative Senior Preferred
Units............................. -- -- -- -- --
Partners' Capital................... 1,529,088 451,843 1,157,262 274,526 199,408
<CAPTION>
THE COMPANY'S
THE COMPANY PREDECESSORS(A)
-------------- -----------------------------
FOR THE PERIOD FOR THE PERIOD
JULY 29, JANUARY 10,
1994 1994 FOR THE YEAR
THROUGH THROUGH ENDED
DECEMBER 31, JULY 28, DECEMBER 31,
1994 1994(B) 1993
-------------- -------------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C> <C>
OPERATING DATA:
RENTAL PROPERTY OPERATIONS:
Rental and other income........... $ 24,894 $ 5,805 $ 8,056
Property operating expenses....... (10,330) (2,263) (3,200)
Owned property management
expenses........................ (711) -- --
Depreciation...................... (4,727) (1,151) (1,702)
-------- ------- -------
9,126 2,391 3,154
-------- ------- -------
SERVICE COMPANY BUSINESS:
Management fees and other
income.......................... 3,217 6,533 8,069
Management and other expenses..... (2,047) (5,823) (6,414)
Corporate overhead allocation..... -- -- --
Other assets, depreciation and
amortization.................... (150) (146) (204)
Owner and seller bonuses.......... -- (204) (468)
Amortization of management company
goodwill........................ -- -- --
-------- ------- -------
1,020 360 983
Minority interests in service
company business.................. (14) -- --
-------- ------- -------
Company's shares of income from
service company business.......... 1,006 360 983
-------- ------- -------
General and administrative
expenses.......................... (977) -- --
Interest income..................... 123 -- --
Interest expense.................... (1,576) (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.............. 7,702 (1,463) 627
Gain on disposition of properties... -- -- --
Provision for income taxes.......... -- (36) (336)
-------- ------- -------
Income (loss) before extraordinary
item.............................. 7,702 (1,499) 291
Extraordinary item -- early
extinguishment of debt............ -- -- --
-------- ------- -------
Net income (loss)................... $ 7,702 $(1,499) $ 291
======== ======= =======
OTHER INFORMATION:
Total owned properties (end of
period)........................... 48 4 4
Total owned apartment units (end of
period)........................... 12,513 1,711 1,711
Units under management (end of
period)........................... 20,758 29,343 28,422
Basic earnings per OP Unit.......... $ 0.42 N/A N/A
Diluted earnings per OP Unit........ $ 0.42 N/A N/A
Distributions paid per OP Unit...... $ 0.29 N/A N/A
Cash flows provided by operating
activities........................ 16,825 2,678 2,203
Cash flows used in investing
activities........................ (186,481) (924) (16,352)
Cash flows provided by (used in)
financing activities.............. 176,800 (1,032) 14,114
Funds from operations(e)............ 9,391 N/A N/A
Weighted average number of OP Units
outstanding....................... 10,920 N/A N/A
BALANCE SHEET INFORMATION:
Real estate, before accumulated
depreciation...................... $406,067 $47,500 $46,819
Real estate, net of accumulated
depreciation...................... 392,368 33,270 33,701
Total assets........................ 416,361 39,042 38,914
Total mortgages and notes payable... 141,315 40,873 41,893
Mandatorily redeemable 1994
Cumulative Senior Preferred
Units............................. 96,600 -- --
Partners' Capital................... 169,401 (9,345) (7,556)
</TABLE>
13
<PAGE> 15
- ---------------
(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 the Partnership for 9,075,000 OP Units, 966,000
Preferred Units and 513,514 OP Units, respectively. On such date, the
Company and the Company's 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's 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 by the
Company in 1995.
(b) Represents the period January 1, 1994 through July 28, 1994, the date of
the completion of the business combination with the Company.
(c) Represents the Company's share of earnings from partnerships that own
83,431 apartment units in which partnerships the Company purchased an
equity interest from the NHP Real Estate Companies.
(d) Represents the Company's equity earnings in the Unconsolidated
Subsidiaries.
(e) The Partnership's management believes that the presentation of FFO, when
considered with the financial data determined in accordance with GAAP,
provides a useful measure of the Partnership's performance. However, FFO
does not represent cash flow and is not necessarily indicative of cash flow
or liquidity available to the Partnership, 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. The
Partnership calculates FFO consistent with the NAREIT definition, 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 preferred stock. The Partnership's management
believes that presentation of FFO provides investors with industry-accepted
measurements which help facilitate an understanding of the Partnership's
ability to make required dividend payments, capital expenditures and
principal payments on its debt. There can be no assurance that the
Partnership's basis of computing FFO is comparable with that of other
REITs.
The following is a reconciliation of net income to FFO:
<TABLE>
<CAPTION>
FOR THE SIX MONTHS FOR THE
ENDED JUNE 30, FOR THE YEAR ENDED DECEMBER 31, PERIOD
------------------- --------------------------------- JANUARY 10,
1998 1997 1997 1996 1995 1994
-------- -------- --------- --------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net income............................ $38,524 $11,464 $32,697 $15,673 $14,988 $ 7,702
Gain on disposition of property....... (2,526) -- (2,720) (44) -- --
Extraordinary item.................... -- 269 269 -- -- --
Real estate depreciation, net of
minority interests.................. 32,423 13,250 33,751 19,056 15,038 4,727
Amortization of goodwill.............. 4,727 474 948 500 428 76
Equity in earnings of Unconsolidated
Subsidiaries:
Real estate depreciation............ -- 1,263 3,584 -- -- --
Amortization of management
contracts........................ 3,088 150 1,587 -- -- --
Deferred taxes...................... 4,291 874 4,894 -- -- --
Equity in earnings of other
partnerships:
Real estate depreciation............ 9,131 697 6,280 -- -- --
Preferred stock dividends........... (6,001) -- (135) -- (5,169) (3,114)
------- ------- ------- ------- ------- -------
Funds from operations................. $83,657 $28,441 $81,155 $35,185 $25,285 $ 9,391
======= ======= ======= ======= ======= =======
</TABLE>
14
<PAGE> 16
SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION
The following table sets forth summary pro forma financial and operating
information of the Company for the six months ended June 30, 1998 and for the
year ended December 31, 1997. The pro forma financial and operating information
(Pre-Insignia Merger) gives effect to the NHP Merger, the NHP Real Estate
Acquisition, the NHP Reorganization, the Ambassador Merger, the OP Merger and
certain other acquisitions and dispositions of assets, and issuances of OP Units
and Preferred Units. The pro forma financial and operating information (Insignia
Merger) gives effect to all the items in the pro forma financial and operating
information (Pre-Insignia Merger), as well as the Insignia Merger and the
transfer of certain assets and liabilities of Insignia to the Unconsolidated
Subsidiaries (the "Insignia Reorganization").
<TABLE>
<CAPTION>
THE COMPANY
---------------------------------------------------------------
PRO FORMA (PRE-INSIGNIA MERGER) PRO FORMA (INSIGNIA MERGER)
-------------------------------- ----------------------------
FOR THE SIX FOR THE YEAR FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED MONTHS ENDED ENDED
JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31,
1998 1997 1998 1997
--------------- -------------- ------------- ------------
(IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C> <C> <C>
OPERATING DATA:
RENTAL PROPERTY OPERATIONS:
Rental and other income...................... $ 202,943 $ 395,290 $ 206,931 $ 402,202
Property operating expenses.................. (77,089) (165,859) (78,825) (169,166)
Owned property management expenses........... (4,880) (10,412) (4,880) (10,412)
Depreciation................................. (44,468) (84,959) (45,728) (87,246)
---------- --------- ---------- ---------
76,506 134,060 77,498 135,378
---------- --------- ---------- ---------
SERVICE COMPANY BUSINESS:
Management fees and other income............. 9,562 21,750 19,525 41,676
Management and other expenses................ (5,470) (15,304) (9,660) (23,683)
Corporate overhead allocation................ (196) (588) (196) (588)
Depreciation and amortization................ (3) (7,201) (6,634) (20,663)
---------- --------- ---------- ---------
3,893 (1,343) (3,035) (3,258)
Minority interests in service company
business................................... (1) (10) (1) (10)
---------- --------- ---------- ---------
Partnership's shares of income from service
company business........................... 3,892 (1,353) (3,034) (3,268)
---------- --------- ---------- ---------
General and administrative expenses.......... (4,103) (6,421) (4,678) (21,228)
Interest income.............................. 11,350 10,576 15,781 21,543
Interest expense............................. (41,730) (85,681) (57,382) (106,890)
Minority interest............................ (516) 1,657 (6,103) (10,044)
Equity in losses of unconsolidated
partnerships............................... (4,752) (10,057) 435 (22,899)
Equity in earnings of unconsolidated
subsidiaries............................... 5,609 10,426 1,996 2,344
Amortization of Goodwill..................... (3,394) -- (3,394) --
---------- --------- ---------- ---------
Net income(a).............................. $ 42,862 $ 53,207 $ 27,187 $ (5,064)
========== ========= ========== =========
PER OP UNIT DATA:
Basic earnings (loss) per OP Unit(a)........... $ 0.48 $ 0.36 $ 0.17 $ (0.64)
Diluted earnings (loss) per OP Unit............ $ 0.48 $ 0.35 $ 0.16 $ (0.64)
Distributions paid per OP Unit................. $ 1.125 $ 1.85 $ 1.125 $ 1.85
CASH FLOW DATA:
Cash provided by operating activities(b)....... $ 91,886 $ 147,360 $ 89,324 $ 138,945
Cash used by investing activities(c)........... (8,834) (17,667) (8,942) (17,884)
Cash used by financing activities(d)........... (77,827) (132,548) (91,493) (156,782)
OTHER DATA:
Funds from operations(e)....................... $ 91,570 $ 135,646 $ 106,256 $ 149,178
Weighted average number of OP Units
outstanding.................................. 56,439 55,751 67,283 63,062
BALANCE SHEET DATA:
Real estate, before accumulated depreciation... $2,617,828 $2,669,776
Real estate, net of accumulated depreciation... 2,319,933 2,371,881
Total assets................................... 3,087,365 3,972,470
Total mortgages and notes payable.............. 1,200,987 1,625,854
Company-obligated mandatorily redeemable
convertible securities of a subsidiary
trust........................................ -- 149,500
Partners' capital.............................. 1,675,200 1,978,200
</TABLE>
15
<PAGE> 17
- ---------------
(a) The unaudited Pro Forma Financial Information has been prepared under the
assumption that the AIMCO stockholders approved the Insignia Merger, and
that only shares of AIMCO Class E Preferred Stock were issued. In the event
that the AIMCO stockholders do not approve the Insignia Merger and AIMCO
Class F Preferred Stock is issued, the net income (loss) will decrease
(increase) to $4,683 and $(49,238) for the six months ended June 30, 1998
and the year ended December 31, 1997, respectively, and the net income
(loss) allocable to Unitholders will decrease (increase) to $0.08 and
$(0.84) for the six months ended June 30, 1998 and the year ended December
31, 1997, respectively.
(b) Pro forma cash provided by operating activities represents net income, plus
depreciation and amortization less the non-cash portion of the Partnership's
equity in earnings of unconsolidated subsidiaries. The pro forma amounts do
not include adjustments for changes in working capital resulting from
changes in current assets and current liabilities as there is no historical
data available as of both the beginning and end of each period presented.
(c) On a pro forma basis, cash used in investing activities represents the
minimum annual provision for capital replacements of $300 per owned
apartment unit.
(d) Pro forma cash used in financing activities represents (i) estimated
distributions to be paid based on the Partnership's historical distribution
rate of $1.125 per OP Unit for the six months ended June 30, 1998 and $1.85
per OP Unit for the year ended December 31, 1997, on outstanding OP Units,
(ii) estimated distributions to be paid based on the rate of $3.5625 per
unit for the six months ended June 30, 1998 and $7.125 per unit for the year
ended December 31, 1997 on outstanding Class B Preferred Units, (iii)
estimated distributions to be paid based on the rate of $1.125 per unit for
the six months ended June 30, 1998 and $2.25 per unit for the year ended
December 31, 1997 on outstanding Class C Preferred Units, (iv) estimated
distributions to be paid based on the rate of $1.095 per unit for the six
months ended June 30, 1998 and $2.19 per unit for the year ended December
31, 1997 on outstanding Class D Preferred Units, (v) estimated distributions
to be paid based on the rate of $1.1718 per unit for the six months ended
June 30, 1998 and $2.34375 per unit for the year ended December 31, 1997 on
outstanding Class G Preferred Units, and (vi) estimated distributions to be
paid based on the rate of $1.1875 per unit for the six months ended June 30,
1998 and $2.375 per unit for the year ended December 31, 1997 on outstanding
Class H Preferred Units.
(e) The Partnership's management believes that the presentation of FFO, when
considered with the financial data determined in accordance with GAAP,
provides useful measures of the Partnership's performance. However, FFO does
not represent cash flow and is not necessarily indicative of cash flow or
liquidity available to the Partnership, 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. The Partnership calculates
FFO in a manner consistent with the NAREIT definition, 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 preferred stock. The Partnership's management believes that presentation
of FFO provides investors with an industry accepted measurement which helps
facilitate an understanding of the Partnership's ability to make required
dividend payments, capital expenditures and principal payments on its debt.
There can be no assurances that the Partnership's basis of computing FFO is
comparable with that of other REITs.
16
<PAGE> 18
The following is a reconciliation of pro forma net income to pro forma FFO:
<TABLE>
<CAPTION>
PRO FORMA (PRE-INSIGNIA MERGER) PRO FORMA (INSIGNIA MERGER)
------------------------------- ----------------------------
FOR THE SIX FOR THE SIX
MONTHS FOR THE MONTHS FOR THE
ENDED YEAR ENDED ENDED YEAR ENDED
JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31,
ACCOUNT 1998 1997 1998 1997
------- ------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Net income (loss)............... $ 42,862 $ 53,207 $ 27,187 $ (5,064)
HUD release fee and legal
reserve....................... -- -- -- 10,202
Real estate depreciation, net of
minority interests............ 42,602 80,503 43,391 81,936
Amortization of management
contracts..................... -- -- 5,773 11,546
Amortization of management
company goodwill.............. 3,052 6,103 3,877 7,752
Equity in earnings of
unconsolidated subsidiaries:
Real estate depreciation...... -- 1,715 -- 1,715
Amortization of management
company goodwill........... 959 1,918 959 1,918
Amortization of management
contracts.................. 3,088 5,438 15,345 29,951
Deferred taxes................ 4,291 4,342 1,572 (397)
Equity in earnings of other
partnerships:
Real estate depreciation...... 9,131 11,250 27,579 48,452
Interest on Convertible
Debentures.................... (5,012) (10,003)
Preferred Unit distributions.... (14,415) (28,830) (14,415) (28,830)
-------- -------- -------- --------
Funds From Operations........... $ 91,570 $135,646 $106,256 $149,178
======== ======== ======== ========
</TABLE>
17
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
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 incorporated herein.
RESULTS OF OPERATIONS
Comparison of the Six Months Ended June 30, 1998 to the Six Months Ended June
30, 1997
Net Income
The Company recognized net income of $35.3 million for the six months ended
June 30, 1998, compared to $9.8 million for the six months ended June 30, 1997.
The increase in net income of $25.5 million, or 260%, 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 twelve properties in the first six 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 one
property in 1998 (the "1998 Sold Property"), increased real estate depreciation,
increased goodwill amortization and increased interest expense associated with
indebtedness which was assumed or incurred in connection with the acquisitions
described above. These factors are discussed in more detail in the following
paragraphs.
Rental Property Operations
Rental and other property revenues from the Company's Owned Properties
totaled $161.3 million for the six months ended June 30, 1998, compared to $79.7
million for the six months ended June 30, 1997, an increase of $81.6 million, or
102%. Rental and other property revenues consisted of the following (dollars in
thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1998 JUNE 30, 1997
---------------- ----------------
<S> <C> <C>
"Same store" properties.............................. $ 68,133 $65,146
1997 Acquisitions.................................... 68,305 4,639
1998 Acquisitions.................................... 18,850 --
1997 Sold Properties................................. -- 2,460
1998 Sold Property................................... 103 1,061
Properties in lease-up after the completion of an
expansion or renovation............................ 5,873 6,413
-------- -------
Total...................................... $161,264 $79,719
======== =======
</TABLE>
18
<PAGE> 20
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 $59.6 million for the six months ended June 30, 1998,
compared to $31.2 million for the six months ended June 30, 1997, an increase of
$28.4 million or 91%. Operating expenses consisted of the following (dollars in
thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1998 JUNE 30, 1997
---------------- ----------------
<S> <C> <C>
"Same store" properties.............................. $26,578 $26,073
1997 Acquisitions.................................... 24,886 1,674
1998 Acquisitions.................................... 5,970 --
1997 Sold Properties................................. -- 978
1998 Sold Property................................... 197 373
Properties in lease-up after the completion of an
expansion or renovation............................ 2,012 2,062
------- -------
Total...................................... $59,643 $31,160
======= =======
</TABLE>
Owned property management expenses, representing the costs of managing the
Company's Owned Properties, totaled $4.7 million for the six months ended June
30, 1998, compared to $2.7 million for the six months ended June 30, 1997, an
increase of $2.0 million, or 74%. 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 $3.9
million for the six months ended June 30, 1998, compared to $2.5 million for the
six months ended June 30, 1997. The increase in service company business income
of $1.4 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 $0.8 million for the six
months ended June 30, 1997 to $4.1 million for the six months ended June 30,
1998, a 412% increase. The increase is primarily due to additional corporate
costs and additional employee salaries associated with the purchase of the NHP
Real Estate Companies in June 1997. 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 $34.8 million for the six months ended June 30, 1998, compared to
$20.6 million for the six months ended June 30, 1997, an increase of $14.2
million, or 69%. 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.............................................. $10,599
Interest expense on secured and unsecured short-term and
long-term indebtedness incurred in connection with the
1998 Acquisitions......................................... 3,480
Increase in interest expense on the Company's other
indebtedness.............................................. 95
-------
Total increase.............................................. $14,174
=======
</TABLE>
Interest Income
Interest income totaled $11.4 million for the six months ended June 30,
1998, compared to $1.4 million for the six months ended June 30, 1997. The
increase of $10.0 million is primarily due to interest earned on loans made by
the Company to partnerships in which the Company acts as the general partner.
19
<PAGE> 21
Comparison of the Three Months Ended June 30, 1998 to the Three Months Ended
June 30, 1997
The Company recognized net income of $13.6 million for the three months
ended June 30, 1998, compared to $5.3 million for the three months ended June
30, 1997. The increase in net income of $8.3 million, or 156%, 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 twelve properties in the first six 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 one
property in 1998 (the "1998 Sold Property"), increased real estate depreciation,
increased goodwill amortization and increased interest expense associated with
indebtedness which was assumed or incurred in connection with the acquisitions
described above. These factors are discussed in more detail in the following
paragraphs.
Rental Property Operations
Rental and other property revenues from the Company's Owned Properties
totaled $89.9 million for the three months ended June 30, 1998, compared to
$41.7 million for the three months ended June 30, 1997, an increase of $48.2
million, or 116%. Rental and other property revenues consisted of the following
(dollars in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
JUNE 30, 1998 JUNE 30, 1997
------------------ ------------------
<S> <C> <C>
"Same store" properties........................... $34,198 $32,755
1997 Acquisitions................................. 34,439 3,935
1998 Acquisitions................................. 18,524 --
1997 Sold Properties.............................. -- 1,260
1998 Sold Property................................ -- 541
Properties in lease-up after the completion of an
expansion or renovation......................... 2,767 3,188
------- -------
Total................................... $89,928 $41,679
======= =======
</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 $33.3 million for the three months ended June 30, 1998,
compared to $16.7 million for the three months ended June 30, 1997, an increase
of $16.6 million or 99%. Operating expenses consisted of the following (dollars
in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
JUNE 30, 1998 JUNE 30, 1997
------------------ ------------------
<S> <C> <C>
"Same store" properties........................... $13,900 $13,480
1997 Acquisitions................................. 12,605 1,466
1998 Acquisitions................................. 5,815 --
1997 Sold Properties.............................. -- 510
1998 Sold Property................................ -- 187
Properties in lease-up after the completion of an
expansion or renovation......................... 1,014 1,061
------- -------
Total................................... $33,334 $16,704
======= =======
</TABLE>
Owned property management expenses, representing the costs of managing the
Company's Owned Properties, totaled $2.6 million for the three months ended June
30, 1998, compared to $1.4 million for the three months ended June 30, 1997, an
increase of $1.2 million, or 86%. The increase resulted from the acquisition of
properties in 1997 and 1998.
20
<PAGE> 22
Service Company Business
The Company's share of income from the service company business was $1.2
million for the three months ended June 30, 1998, compared to $1.7 million for
the three months ended June 30, 1997. The decrease in service company business
income of $0.5 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 $0.4 million for the
three months ended June 30, 1997 to $2.1 million for the three months ended June
30, 1998, a 425% increase. The increase is primarily due to additional corporate
costs and additional employee salaries associated with the purchase of the NHP
Real Estate Companies in June 1997. 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 $19.3 million for the three months ended June 30, 1998, compared
to $11.2 million for the three months ended June 30, 1997, an increase of $8.1
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.............................................. $4,654
Interest expense on secured and unsecured short-term and
long-term indebtedness incurred in connection with the
1998 Acquisitions......................................... 3,394
Increase in interest expense on the Company's other
indebtedness.............................................. 137
------
Total increase.................................... $8,185
======
</TABLE>
Interest Income
Interest income totaled $5.3 million for the three months ended June 30,
1998, compared to $0.8 million for the three months ended June 30, 1997. The
increase of $4.5 million is primarily due to interest earned on loans made by
the Company to partnerships in which the Company acts as the general partner.
21
<PAGE> 23
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 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%.
22
<PAGE> 24
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>
23
<PAGE> 25
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 with the
24
<PAGE> 26
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.
25
<PAGE> 27
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 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
26
<PAGE> 28
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
Partnership. The Company considers its cash provided by operating activities,
and funds available under its credit facilities, to be adequate to meet
short-term liquidity demands. The Company utilizes its revolving credit
facilities for general corporate purposes and to fund investments on an interim
basis.
In January 1998, the Company replaced its previous $100 million revolving
credit facility with the $50 million unsecured 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 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 availability of funds to the 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 Partnership had outstanding borrowings under the BOA Credit
Facility of $118.5 million as of June 30, 1998.
In May 1998, the Partnership amended the BOA Credit Facility to increase
its borrowing capacity thereunder 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.
In February 1998, the 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 Partnership's request, the commitment amount under the
WMF Credit Facility may be increased to an amount not to exceed
27
<PAGE> 29
$250 million, subject to the 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 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
Partnership. Advances under the term 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 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
Partnership had outstanding borrowings under the WMF Credit Facility of $50.0
million as of June 30, 1998.
In September 1998, the Partnership and AIMCO obtained a commitment from
affiliates of Lehman Brothers Inc. for a senior interim credit facility in an
aggregate amount of up to $300 million (the "Lehman Credit Facility"). The
proceeds of loans under the Lehman Credit Facility will be used to finance the
Insignia Merger and to pay related fees and expenses, to refinance existing
indebtedness of the Company or Insignia, and for general working capital
purposes. The loans under the Lehman Credit Facility will be unsecured and will
mature in one year. Loans under the Lehman Credit Facility will bear interest at
either a base rate or the rate at which eurodollar deposits for one month are
offered in the interbank eurodollar market, plus, in either case, an increasing
margin which will average 1.375% to 2.71% (in the case of base rate loans) and
2.375% to 3.71% (in the case of eurodollar loans). The base rate will be the
higher of (i) the prime 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%. The availability of the Lehman Credit Facility is
subject to customary conditions.
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 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
28
<PAGE> 30
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 Lehman Credit Facility), the issuance of debt securities, Partnership
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 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.
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
29
<PAGE> 31
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>
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 consistent with the NAREIT definition, which includes adjustments for
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.
30
<PAGE> 32
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>
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>
31
<PAGE> 33
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 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.
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<PAGE> 34
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 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
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<PAGE> 35
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 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
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<PAGE> 36
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 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 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
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. See "Item 11 -- Description of Registrant's
Securities to be Registered -- Partnership Units -- High Performance Units."
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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<PAGE> 37
ITEM 3. PROPERTIES.
The AIMCO Properties are located in 42 states, Puerto Rico and the District
of Columbia. A significant portion of the AIMCO Properties are concentrated in
or around 10 metropolitan areas in which the Company owns, controls or manages
more than 5,000 units. The following table sets forth certain market information
for the AIMCO Properties as of June 30, 1998:
<TABLE>
<CAPTION>
PERCENTAGE OF
TOTAL UNITS
NUMBER OF NUMBER OF OWNED/CONTROLLED
PROPERTIES UNITS OR MANAGED
---------- --------- ----------------
<S> <C> <C> <C>
Chicago, IL..................................... 26 6,013 3%
Dallas, TX...................................... 36 7,590 4%
Houston, TX..................................... 38 9,992 5%
Indianapolis, IN................................ 20 5,208 2%
Orlando, FL..................................... 22 5,490 3%
New York, NY.................................... 46 7,340 4%
Philadelphia, PA................................ 24 7,133 3%
Phoenix, AZ..................................... 30 7,510 4%
Tampa/St. Petersburg, FL........................ 21 7,447 4%
Washington, DC.................................. 37 8,493 4%
----- ------- ---
Principal markets total....................... 300 72,216 36%
Other markets................................... 738 127,456 64%
----- ------- ---
Total................................. 1,038 199,672 100%
===== ======= ===
</TABLE>
The AIMCO Properties average 278 apartment units each, with the largest
property containing 2,113 apartment units.
The Owned Properties are located in 19 states, primarily located in the
Sunbelt regions of the United States. A significant portion of the Owned
Properties are concentrated in or around 14 metropolitan areas in which the
Company owns or controls more than 1,000 units. The following table sets forth
certain market information for Owned Properties as of June 30, 1998:
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF NUMBER OF TOTAL UNITS
PROPERTIES UNITS OWNED OR CONTROLLED
---------- --------- -------------------
<S> <C> <C> <C>
Atlanta, GA................................... 11 3,172 5%
Austin, TX.................................... 11 2,171 4%
Chicago, IL................................... 9 2,257 4%
Denver, CO.................................... 5 1,255 2%
Dallas, TX.................................... 11 2,597 5%
Houston, TX................................... 27 7,533 13%
Ft. Lauderdale, FL............................ 6 3,737 6%
Nashville, TN................................. 3 1,056 2%
Orlando, FL................................... 5 1,672 3%
Phoenix, AZ................................... 28 7,254 12%
San Antonio, TX............................... 17 4,181 7%
Tampa/St. Petersburg, FL...................... 8 2,833 5%
Tucson, AZ.................................... 12 3,395 6%
Washington, DC................................ 1 2,113 4%
--- ------ ---
Principal markets total..................... 154 45,226 78%
Other markets................................. 56 13,119 22%
--- ------ ---
Total............................... 210 58,345 100%
=== ====== ===
</TABLE>
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<PAGE> 38
As of June 30, 1998, the Company owned or controlled 210 properties
containing 58,345 units. The Owned Properties average 278 apartment units each,
with the largest property containing 2,113 apartment units.
The Owned Properties offer residents a range of amenities. Many of the
Owned Properties include a swimming pool and clubhouse, spas, fitness centers,
tennis courts and saunas. Many of the apartment units offer design and appliance
features such as vaulted ceilings, fireplaces, washer and dryer hook-ups, cable
television, balconies and patios.
Substantially all of the Owned Properties are encumbered by mortgage
indebtedness or serve as collateral for the Company's indebtedness. As of June
30, 1998, the Company had aggregate mortgage indebtedness totaling $1,171.6
million, which was secured by 195 Owned Properties with a combined net book
value of $1,796.5 million, having an aggregate weighted average interest rate of
7.9%. See the financial statements included elsewhere in this Registration
Statement for additional information about the Company's indebtedness.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information available to the
Partnership, as of July 31, 1998, with respect to OP Units of the Company held
by (i) each director and the five most highly compensated executive officers of
the General Partner who were serving as of December 31, 1997, (ii) all directors
and executive officers of the Partnership as a group and (iii) those persons
known to the Company to be the beneficial owners (as determined under the rules
of the Commission) of more than 5% of such OP Units. This table does not reflect
options that are not exercisable within 60 days, or the beneficial ownership of
High Performance Units by executive officers and directors of the General
Partner. The business address of each of the following persons is 1873 South
Bellaire Street, Suite 1700, Denver, Colorado 80222-4348, unless otherwise
specified.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF NUMBER OF PERCENTAGE OWNERSHIP
BENEFICIAL OWNER OP UNITS OF THE PARTNERSHIP
------------------- ---------- --------------------
<S> <C> <C>
Directors & Executive Officers of the General Partner:
Terry Considine.......................................... 2,563,648(1)(2)(6) 8.5%
Peter K. Kompaniez....................................... 622,930(1) 2.5%
Steven D. Ira............................................ 338,070(1)(4) 1.0%
Thomas W. Toomey......................................... 239,632 0.9%
Harry G. Alcock.......................................... 20,126(5) *
All directors and executive officers of the General Partner
as a group (15 persons).................................. 4,147,262(7) 14.3%
5% or Greater Holders:
AIMCO-GP, Inc. .......................................... 481,068 *
AIMCO-LP, Inc. .......................................... 47,625,769 87.9%
Cohen & Steers Realty Shares, Inc........................ 4,281,900 7.9%
757 Third Avenue
New York, NY 10017
ABKB/LaSalle Securities Limited Partnership.............. 2,817,018(8) 5.2%
100 East Pratt Street
Baltimore, Maryland 21202
</TABLE>
- ---------------
* Less than 1.0%
(1) Excludes 93,428, 41,438 and 13,821 Class B OP Units held by Messrs.
Considine, Kompaniez and Ira, respectively, representing 57.5%, 25.5% and
8.5%, respectively of the total number of Class B OP Units outstanding.
(2) Includes 1,494,759 OP Units held by entities in which Mr. Considine holds
sole voting and investment power, 74,743 OP Units held by Mr. Considine's
spouse, Elizabeth Considine, for which Mr. Considine disclaims beneficial
ownership, and 63,278 OP Units held by a non-profit corporation in which
Mr. Considine has shares voting and investment power with his spouse. Mr.
Considine disclaims beneficial ownership of 1,380,078 OP Units held by
Considine Partnership in which Mr. Considine holds a 10% general
partnership interest with the remaining 90% held by trusts for members of
Mr. Considine's family.
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<PAGE> 39
(3) Includes 161,816 OP Units held by entities in which Mr. Considine has sole
voting and investment power, 2,300 OP Units held by the Considine
Partnership for 90% of which Mr. Considine disclaims beneficial ownership,
and 157,698 OP Units held by Mr. Considine's spouse, for which Mr.
Considine disclaims beneficial ownership.
(4) Includes 49,600 OP Units subject to options that are exercisable within 60
days.
(5) Includes 5,525 OP Units subject that are exercisable within 60 days.
(6) Includes 2,400 OP Units subject that are exercisable within 60 days.
(7) Includes 102,054 OP Units subject that are exercisable within 60 days.
(8) Includes 937,508 OP Units beneficially owned by LaSalle Advisors Capital
Management, Inc.
ITEM 5. BOARD OF DIRECTORS AND OFFICERS.
All of the executive officers of the General Partner of the Partnership
also serve as executive officers of AIMCO. Accordingly, the information below
reflects the directors of the General Partner and the executive officers of both
the General Partner of the Partnership and AIMCO. The officers of AIMCO and the
General Partner of the Partnership are elected annually by their respective
Boards of Directors.
<TABLE>
<CAPTION>
NAME AGE FIRST ELECTED CURRENT POSITION
- ---- --- ------------- ----------------
<S> <C> <C> <C>
Terry Considine................... 50 July 1994 Chairman of the Board of Directors
and Chief Executive Officer
Peter K. Kompaniez................ 53 July 1994 Vice Chairman of the Board of
Directors and President
Steven D. Ira..................... 47 July 1994 Executive Vice President and Co-
Founder
Thomas W. Toomey.................. 37 January 1996 Executive Vice
President -- Finance and
Administration
Joel F. Bonder.................... 49 December 1997 Executive Vice President, General
Counsel and Secretary
Patrick J. Foye................... 41 May 1998 Executive Vice President
Robert Ty Howard.................. 40 February 1998 Executive Vice
President -- Ancillary Services
David L. Williams................. 52 January 1997 Executive Vice
President -- Property Operations
Harry G. Alcock................... 34 July 1996 Senior Vice
President -- Acquisitions
Troy D. Butts..................... 33 November 1997 Senior Vice President and Chief
Financial Officer
</TABLE>
The following is a biographical summary of the experience of the current
directors of the General Partner and executive officers of the General Partner
and AIMCO for the past five years or more.
Terry Considine. Mr. Considine has been Chairman of the Board of Directors
and Chief Executive Officer of the General Partner and AIMCO 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 and remains 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 laborato-
38
<PAGE> 40
ries. 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.
Mr. Considine has had substantial multifamily real estate experience. From
1975 through July 1994, partnerships or other entities in which Mr. Considine
had controlling interests invested in approximately 35 multifamily apartment
properties and commercial real estate properties. Six of these real estate
assets (four of which were multifamily apartment properties and two of which
were office properties) did not generate sufficient cash flow to service their
related indebtedness and were foreclosed upon by their lenders, causing pre-tax
losses of approximately $11.9 million to investors and losses of approximately
$2.7 million to Mr. Considine.
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 the General Partner from July 1994
through July 1998 and was appointed President in July 1998. Mr. Kompaniez has
been a director of the General Partner 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 served 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 Company) 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).
The downturn in the real estate markets in the late 1980s and early 1990s
adversely affected the United States real estate operations of Heron
International N.V. and its subsidiaries and affiliates (the "Heron Group").
During this period from 1986 to 1993, Mr. Kompaniez served as President and
Chief Executive Officer of HFC, and as a director or officer of certain other
Heron Group entities. In 1993, HFC, its parent Heron International, and certain
other members of the Heron Group voluntarily entered into restructuring
agreements with separate groups of their United States and international
creditors. The restructuring agreement for the United States members of the
Heron Group generally provided for the joint assumption of certain liabilities
and the pledge of unencumbered assets in support of such liabilities for the
benefit of their United States creditors. As a result of the restructuring, the
operations and assets of the United States members of the Heron Group were
generally separated from those of Heron International and its non-United States
subsidiaries. At the conclusion of the restructuring, Mr. Kompaniez commenced
the operations of PDI, which was engaged to act as asset and corporate manager
of the continuing United States operations of HFC and the other United States
Heron Group members for the benefit of the United States creditors. In
connection with certain transactions effected at the time of the initial public
offering of AIMCO's Class A Common Stock, substantially all of the property
management assets of PDI were transferred or assigned to the Company.
Steven D. Ira. Mr. Ira is a Co-Founder of the Company and has served as
Executive Vice President of AIMCO since July 1994. Mr. Ira has been Executive
Vice President of the General Partner 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 Boards 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.
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<PAGE> 41
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 the General Partner
since July 1998. From 1990 until 1995, Mr. Toomey served in a similar capacity
with Lincoln Property Company ("LPC") 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 has been Executive Vice President and General
Counsel of AIMCO since December 8, 1997. Mr. Bonder has been Executive Vice
President and General Counsel of the General Partner since July 1998. Prior to
joining the Company, Mr. Bonder served as Senior Vice President and General
Counsel of NHP Incorporated from April 1994 until December 1997. Mr. Bonder
served as Vice President and Deputy General Counsel of NHP Incorporated from
June 1991 to March 1994 and as Associate General Counsel of NHP Incorporated
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. Patrick Foye has served as Executive Vice President of the
General Partner and AIMCO since May 1998. Mr. Foye is responsible for
acquisitions of partnership securities, consolidation of minority interests, and
corporate and other acquisitions. Mr. Foye was a Mergers and Acquisitions
partner with 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. In addition, Mr. Foye is the Deputy Chairman of the Long Island
Power Authority ("LIPA"), appointed by Governor Pataki, and a member of Governor
Pataki's New York State Privatization Council. Mr. Foye received a B.A. from
Fordham College, a J.D. from Fordham Law School and was Associate Editor of the
Fordham Law Review.
Robert Ty Howard. Mr. Howard has served as Executive Vice
President -- Ancillary Services of AIMCO since February 1998. Mr. Howard was
appointed Executive Vice President -- Ancillary Services of the General Partner
in July 1998. Prior to joining the Company, 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.
David L. Williams. Mr. Williams has been Executive Vice
President -- Operations of AIMCO since January 1997. Mr. Williams has been
Executive Vice President -- Operations of the General Partner since July 1998.
Prior to joining the Company, Mr. Williams was Senior Vice President of
Operations at Evans Withycombe Residential, Inc. from January 1996 to January
1997. Previously, he was Executive Vice President at Equity Residential
Properties Trust from October 1989 to December 1995. He has served on National
Multi-Housing Council Boards and NAREIT committees. Mr. Williams also served as
Senior Vice President of Operations and Acquisitions of US Shelter Corporation
from 1983 to 1989. Mr. Williams has been involved in the property management,
development and acquisition of real estate properties since 1973. Mr. Williams
received his B.A. in education and administration from the University of
Washington in 1967.
Harry G. Alcock. Mr. Alcock has served as a Vice President of the General
Partner and AIMCO since July 1996, and was promoted to Senior Vice
President -- Acquisitions in October 1997, with responsibility for acquisition
and financial 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
40
<PAGE> 42
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 the General Partner since July 1998.
Prior to joining the Company, 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.
ITEM 6. EXECUTIVE COMPENSATION.
The following table sets forth the compensation paid for each of the three
fiscal years ending December 31, 1997, 1996 and 1995 to the directors of the
General Partner, and the Chief Executive Officer and each of the four other most
highly compensated executive officers of the General Partner and AIMCO (the
"Named Executive Officers"). Information regarding stock options and other stock
based compensation payable by AIMCO has been included for informational purposes
since the Partnership will issue to AIMCO additional OP Units upon the exercise
of such stock options and the contribution to the Partnership of the net
proceeds therefrom.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION(1)
AWARDS
---------------
ANNUAL COMPENSATION SECURITIES
------------------------------------------------ UNDERLYING
OTHER ANNUAL STOCK OPTIONS/ ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($)(2) COMPENSATION($) SARS(#) COMPENSATION($)
- --------------------------- ---- --------- ----------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Terry Considine............ 1997 $275,000 $2,060,000 -- -- --
Chairman of the Board of 1996 267,500 20,000 -- 165,000 --
Directors and Chief 1995 257,500 6,000 -- -- --
Executive Officer
Peter K. Kompaniez......... 1997 $235,000 $ 800,000 -- -- --
Vice Chairman and 1996 227,500 20,000 -- 87,000 --
President 1995 227,500 6,000 -- -- --
Steven D. Ira.............. 1997 $200,000 $ 500,000 -- -- --
Executive Vice President 1996 194,000 20,000 -- 77,000 --
and Co-Founder 1995 158,500 6,000 -- -- --
Thomas W. Toomey........... 1997 $180,000 $ 555,000 -- -- --
Executive Vice
President -- 1996 130,000 50,000 -- 73,000 --
Finance and
Administration 1995 (3) -- -- -- --
Harry G. Alcock............ 1997 $120,200 $ 300,000 -- 4,000 --
Senior Vice President -- 1996 60,700 22,000 -- -- --
Acquisitions 1995 55,000 6,000 -- 650 --
</TABLE>
- ---------------
(1) Excludes 1,227,078, 376,526, 125,632, 165,632 and 14,000 shares of AIMCO
Class A Common Stock underlying options granted to Messrs. Considine,
Kompaniez, Ira, Toomey and Alcock, respectively, from 1995 to 1997, which
were immediately exercised to purchase shares pursuant to AIMCO's leveraged
stock purchase program. See "Item 7 -- Certain Relationships and Related
Transactions -- Stock Purchase Loans."
(2) Includes all discretionary and incentive cash compensation earned by the
Named Executive Officers in 1997.
(3) Mr. Toomey was not an employee of the General Partner or AIMCO prior to
January 1996.
41
<PAGE> 43
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Information on options granted in 1997 to the Named Executive Officers is
set forth in the following table. Such options reflect options to purchase
shares of AIMCO Class A Common Stock.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(1) POTENTIAL REALIZABLE
--------------------------------------------------------- VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS/SARS PRICE APPRECIATION FOR
UNDERLYING GRANTED EXERCISE OR OPTION TERM(3)
OPTIONS/SARS TO EMPLOYEES BASE EXPIRATION ----------------------
NAME GRANTED(#)(2) IN FISCAL YEAR PRICE($/SH) DATE 5%($) 10%($)
---- ------------- -------------- ----------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Terry Considine........ -- -- -- -- -- --
Peter K. Kompaniez..... -- -- -- -- -- --
Steven D. Ira.......... -- -- -- -- -- --
Thomas W. Toomey....... -- -- -- -- -- --
Harry G. Alcock........ 4,000 0.28% 26.75 2/04/2007 $67,292 $170,530
</TABLE>
- ---------------
(1) Unless otherwise specified, options vest over five years. Under the terms of
the Apartment Investment and Management Company 1997 Stock Award and
Incentive Plan, as amended (the "1997 Stock Plan"), the plan administrator
retains discretion, subject to certain restrictions, to modify the terms of
outstanding options. The exercise price of incentive and non-qualified
options granted under the 1997 Stock Plan will generally equal the fair
market value of a share of Class A Common Stock on the date of grant.
(2) Excludes 691,578, 210,526, 52,632, 52,632 and 14,000 shares of Class A
Common Stock underlying options granted to Messrs. Considine, Kompaniez,
Ira, Toomey and Alcock, respectively, which were immediately exercised to
purchase shares pursuant to AIMCO's leveraged stock purchase program. See
"Item 7 -- Certain Relationships and Related Transactions -- Stock Purchase
Loans."
(3) Assumed annual rates of stock price appreciation are set forth for
illustrative purposes only. The amounts shown are for the assumed rates of
appreciation only, do not constitute projections of future stock price
performance, and may not be realized.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
Information on option exercises during 1997 by the Named Executive
Officers, and the value of unexercised options held by Named Executive Officers
at December 31, 1997 is set forth in the following table. Such options reflect
options to purchase shares of AIMCO Class A Common Stock.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS
SHARES FY-END(#) AT FY-END($)(3)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#)(1) REALIZED($)(2) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Terry Considine...... 153,000 2,333,250 0 9,600 0 154,800
Peter K. Companiez... 83,800 1,110,450 0 3,200 0 51,600
Steven D. Ira........ 0 0 73,800 3,200 1,180,900 51,600
Thomas W. Toomey..... 73,000 972,250 0 0 0 0
Harry G. Alcock...... 0 0 5,241 828 63,185 15,469
</TABLE>
- ---------------
(1) Excludes 691,578, 210,526, 52,632, 52,632 and 14,000 shares of Class A
Common Stock underlying options granted to Messrs. Considine, Kompaniez,
Ira, Toomey and Alcock, respectively, which were immediately exercised to
purchase shares pursuant to AIMCO's leveraged stock purchase program. See
"Item 7 -- Certain Relationships and Related Transactions -- Stock Purchase
Loans."
(2) "Value Realized" includes amounts withheld for payment of Federal and state
taxes.
(3) Market value of underlying securities at fiscal year-end, less the exercise
price. Market value is determined based on the closing price of the Class A
Common Stock on the New York Stock Exchange on December 31, 1997 of $36.75
per share.
42
<PAGE> 44
EMPLOYMENT ARRANGEMENTS
Each of Messrs. Considine, Kompaniez and Ira receive annual cash
compensation pursuant to employment contracts with the Partnership. The initial
two-year term of each of these contracts expired in July 1996 but the contracts
are automatically renewed for successive one-year terms unless the officer is
terminated by the Partnership. The base salary payable under the employment
contracts is subject to annual review and adjustment by the Compensation
Committee of AIMCO's Board of Directors. The base annual salaries of Messrs.
Considine, Kompaniez and Ira are $275,000, $235,000 and $200,000, respectively,
for 1997 and 1998. Each of Messrs. Considine, Kompaniez and Ira are also
eligible for a bonus set by the Compensation Committee of AIMCO's Board of
Directors.
The employment contracts provide that upon a change in control of the
Partnership or a termination of employment under certain circumstances, the
employee will be entitled to a payment equal to three times the average annual
salary for the previous three years. The contracts provide that during the terms
of the contract and for one year thereafter, except with respect to certain
existing investments held by the employee (which the employees have committed to
liquidate in an orderly manner), in no event will the employees engage in the
acquisition, development, operation or management of other multifamily rental
apartment properties outside of the Partnership. In addition, the contracts
provide that the employees will not engage in any active or passive investment
in property relating to multifamily rental apartment properties, with the
exception of the ownership of up to 1% of the securities of any publicly-traded
company involved in those activities.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
From time to time, the Partnership and AIMCO have entered into various
transactions with certain of their executive officers and directors. The purpose
of these transactions often is to satisfy certain requirements of the Code with
respect to AIMCO's continued qualification as a REIT and to maximize value to
the Company. The Partnership and AIMCO attempt to price such transactions based
on fair market value, and believe that the transactions are on terms that are as
favorable to the Partnership and AIMCO, as the case may be, as could be achieved
with unrelated third parties.
FORMATION OF MANAGEMENT SUBSIDIARIES
In order to satisfy certain requirements of the Code with respect to
AIMCO's continued qualification as a REIT, from time to time the Company has
acquired interests in corporations (the "Management Subsidiaries") in which the
Company holds non-voting preferred stock representing a 95% economic interest in
such corporations. The remaining 5% economic interest, which represents 100% of
the voting interest, is owned by certain of AIMCO's executive officers,
including Messrs. Considine and Kompaniez. Although transactions between the
Company and the Preferred Stock Subsidiaries are not made on an arms-length
basis, the Company believes that such transactions are at fair market value.
During 1997, in connection with the NHP Acquisition, the following
Management Subsidiaries were formed: AIMCO/NHP Holdings, Inc. ("ANHI"), NHP
Management Company ("NHP Management"), AIMCO/NHP Properties, Inc. ("ANPI") and
NHP A&R Services, Inc. ("NHPAR"). Mr. Considine acquired 4% of the outstanding
stock of each of ANHI, NHP Management, ANPI and NHPAR for $2,526,315,
$2,219,776, $17,458 and $1,052,631, respectively, with a total of $5,816,180
financed with loans from the Company or the Management Subsidiaries. Mr.
Kompaniez acquired 1% of the outstanding stock of each of ANHI, NHP Management,
ANPI and NHPAR for $631,578, $554,944, $4,365 and $263,158, respectively, with a
total of $1,454,044 financed with loans from the Company or the Management
Subsidiaries. For the year ended December 31, 1997, Messrs. Considine and
Kompaniez have received dividends of approximately $1,703,500, $420,700 and
$19,550, respectively, on their shares of common stock of the Management
Subsidiaries, and the Partnership has received dividends of $40,731,250 on its
shares of preferred stock of the Management Subsidiaries. Substantially all of
the amounts paid as dividends to Messrs. Considine and Kompaniez were used to
pay interest and/or principal due under promissory notes to AIMCO and the
Management Subsidiaries.
43
<PAGE> 45
TRANSACTIONS WITH THE MANAGEMENT SUBSIDIARIES
On May 5, 1997, pursuant to a Stock Purchase Agreement dated as of April
16, 1997, AIMCO acquired 2,866,073 shares of common stock ("NHP Common Stock")
of NHP from certain holders (collectively, the "NHP Sellers") in exchange for
2,142,857 shares of AIMCO Class A Common Stock with a recorded value of $57.3
million.
Subsequent to the purchase, AIMCO contributed the NHP Common Stock to the
Partnership in exchange for additional OP Units. The Company then contributed
the NHP Common Stock to ANHI in exchange for all of the shares of ANHI's
non-voting preferred stock, representing a 95% economic interest in ANHI.
Concurrently, ANHI obtained a loan in the amount of $72.6 million (the "ANHI
Credit Facility") and used the proceeds from the loan to purchase an additional
3,630,000 shares of NHP Common Stock from the NHP Sellers. Upon the completion
of this transaction, ANHI owned 6,496,073 shares of NHP Common Stock,
representing 51.3% of the NHP Common Stock outstanding as of May 31, 1997.
In separate transactions, occurring in August and September 1997, ANHI sold
to AIMCO 5,717,000 shares of NHP Common Stock for an aggregate purchase price of
$114.4 million. ANHI used $74.3 million of the proceeds from the sale to repay
the principal and accrued interest outstanding under the ANHI Credit Facility
and distributed $40.0 million to the Partnership and its other shareholders. In
addition, AIMCO acquired an additional 434,049 shares of NHP Common Stock from
the NHP Sellers, bringing the total number of shares of NHP Common Stock owned
by AIMCO and ANHI to 6,930,122.
As a result of the NHP Merger on December 8, 1997, the outstanding shares
of NHP Common Stock, other than the shares owned by ANHI, were converted into
the right to receive an aggregate of 4,554,827 shares of AIMCO Class A Common
Stock and cash payments of $0.3 million, excluding cash paid to ANHI of $7.8
million. Immediately following the NHP Merger, AIMCO completed the NHP
Reorganization, as a result of which the former operations of NHP are now
primarily conducted through the Management Subsidiaries.
On August 15, 1997, the Company contributed stock of a captive insurance
subsidiary to Property Management Services, Inc. ("PAMS Inc.") Messrs.
Considine, Kompaniez and Ira made additional capital contributions (in the form
of promissory notes) to PAMS Inc. of $133,389, $26,678 and $25,196, respectively
($185,263 in the aggregate), to maintain their aggregate 5% interest in PAMS
Inc. (3.6%, 0.72% and 0.68%, respectively).
On July 10, 1997, the Partnership acquired a 99% limited partner interest
in the Unconsolidated Partnership in exchange for partnership interests in
certain limited partnerships formerly owned by NHP, with an aggregate, estimated
value of $2,259,000, and an affiliate of Messrs. Considine and Kompaniez
acquired a 1% general partner interest in exchange for promissory notes with an
aggregate principal amount of $22,590.
During 1997, in order to preserve AIMCO's REIT status, AIMCO transferred
the following assets to Management Subsidiaries in exchange for non-voting
preferred stock: (i) partnership interests with an estimated value of
approximately $419,333 to ANPI: (ii) partnership interests with an estimated
value of approximately $5,919 to ANHI: (iii) partnership interests, a $50
million promissory note and certain management agreements with an aggregate
estimated value of approximately $53.7 million to NHP Management; and (iv) stock
of certain corporations with an estimated value of $25 million to NHPAR.
On January 31, 1998, AIMCO entered into a Contribution Agreement (the
"Contribution Agreement"), with CK Services, Inc. ("CK") and the stockholders of
CK to cause certain assets of AIMCO to be contributed to CK and, subject to
certain conditions, 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 Peter Kompaniez, AIMCO's
President and Vice Chairman.
It is AIMCO's intent to use CK as a vehicle for holding property and
performing services that AIMCO is limited or prohibited from holding or
providing due to AIMCO's 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 prices and approved by the independent members of the AIMCO
Board of Directors, and if market prices are difficult to ascertain, there can
be no assurance that the pricing will favor AIMCO. It is anticipated that the
assets to be contributed to CK will be immaterial compared to total assets held
by AIMCO.
44
<PAGE> 46
On July 1, 1998, Messrs. Considine and Kompaniez and AIMCO contributed
their stock in PAMS Inc. to NHP Management and Mr. Ira's interest in PAMS, Inc.
was redeemed.
STOCK PURCHASE LOANS
During 1997, AIMCO issued 1,462,735 shares of Class A Common Stock to
certain executive officers (or entities controlled by them) for an aggregate
purchase price of $34,957,250, which is equal to the aggregate of the closing
prices of the Class A Common Stock on the New York Stock Exchange on each date
of issuance. In payment for such shares, the executive officers executed notes
payable to AIMCO bearing interest at 7.25% per annum, payable quarterly, and due
in 2007. These stock purchase notes are secured by the shares purchased and are
recourse as to 15% to 33% of the amount borrowed.
The following table sets forth the amounts owed under such stock purchase
notes:
<TABLE>
<CAPTION>
AMOUNTS
HIGHEST AMOUNT REPAID
AMOUNT OWED 12/31/97 REPAID DURING 1998 6/30/98
NAME DURING 1997 BALANCE SINCE INCEPTION (AS OF 6/30/98) BALANCE
---- ----------- ----------- --------------- --------------- -----------
<S> <C> <C> <C> <C> <C>
Terry Considine....... $23,795,317 $22,020,964 $19,285,816 $5,470,790 $16,550,174
Peter K. Kompaniez.... 7,510,749 4,124,478 7,811,787 0 4,124,478
Steven D. Ira......... 3,068,884 3,052,093 85,621 44,004 3,008,089
Thomas W. Toomey...... 3,212,525 1,363,946 4,473,224 69,500 1,294,446
Harry G. Alcock....... 406,050 404,289 79,670 76,959 327,330
David L. Williams..... 1,578,960 1,568,309 11,908 1,257 1,567,052(1)
Troy Butts............ 1,050,008 1,048,619 12,356 10,967 1,037,652
Ty Howard............. 0 0 15,072 15,072 1,432,428
</TABLE>
- ---------------
(1) Repaid in full in July 1998.
MANAGEMENT OF CERTAIN PROPERTIES
Mr. Considine has retained the Company to manage two properties owned by
his affiliates. These contracts are on similar terms as contracts with other
property owners and are terminable upon 30 days notice. During 1997, an
aggregate of $105,000 in management fees were paid to the Company for management
of these properties.
SALE OF HIGH PERFORMANCE UNITS
On January 21, 1998, the Partnership sold an aggregate of 15,000 High
Performance Units to SMP and to three of AIMCO's non-employee directors, J.
Landis Martin, Thomas I. Rhodes and John D. Smith, for an aggregate purchase
price of $2,070,000, of which $1,980,300 was paid by SMP and an aggregate of
$89,700 was paid by the three non-employee directors of AIMCO. The purchase
price of the High Performance Units was determined by the Board of Directors of
AIMCO, based upon the advice of an independent valuation expert that this
purchase price represented the fair market value of the High Performance Units.
The sale of the High Performance Units was ratified by AIMCO stockholders on May
8, 1998.
ITEM 8. LEGAL PROCEEDINGS.
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
45
<PAGE> 47
Company policy is to comply with 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.
ITEM 9. MARKET PRICE OF AND DISTRIBUTIONS ON THE REGISTRANT'S COMMON UNITS AND
RELATED UNITHOLDER MATTERS.
There is no public market for the OP Units, and the Partnership does not
intend to list the OP Units on any securities exchange. In addition, the
Partnership Agreement restricts the transferability of OP Units. See "Item
11 -- Description of Registrant's Securities to be Registered -- Transfers and
Withdrawals" and a copy of the Partnership Agreement, incorporated herein by
reference. The following table sets forth the cash distributions per OP Unit
during the years ended December 31, 1996 and 1997, as well as the distributions
paid to date for 1998.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1998 1997 1996
------- ------- ------
<S> <C> <C> <C>
1st Quarter................................................. $0.5625 $0.4625 $0.425
2nd Quarter................................................. $0.5625 $0.4625 $0.425
3rd Quarter................................................. -- $0.4625 $0.425
4th Quarter................................................. -- $0.4625 $0.425
</TABLE>
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES.
During 1997 and the period from January 1, 1998 through August 31, 1998,
the Partnership issued 1.9 million and 0.9 million OP Units, respectively, in
transactions to acquire real property or interests in real property. Each of
these transactions was exempt from registration under the Securities Act of
1933, as amended (the "Securities Act"), pursuant to Section 4(2) thereof or
Regulation D thereunder.
In addition, during those same time periods, the Partnership issued to
AIMCO in exchange for cash, 25,459,000 and 0 OP Units, respectively, 750,000 and
0 Class B Partnership Preferred Units, respectively, 2,400,000 and 0 Class C
Partnership Preferred Units, respectively, 0 and 4,200,000 Class D Partnership
Preferred Units, respectively, 0 and 4,050,000 Class G Preferred Units,
respectively, and 0 and 2,000,000 Class H Preferred Units, respectively. Each of
these transactions was also exempt from registration under the Securities Act,
pursuant to Section 4(2) thereof or Regulation D thereunder.
Finally, during the first eight months of 1998, the Partnership sold 15,000
High Performance Units to SMP and three non-employee directors of AIMCO. This
transaction was also exempt from registration under the Securities Act, pursuant
to Section 4(2) thereof or Regulation D thereunder.
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED.
PARTNERSHIP UNITS
The following description sets forth certain general terms and provisions
of the Partnership Units and the Partnership Agreement. The Partnership
Agreement is filed as an exhibit to this Form 10 Registration Statement, and
this description is qualified in its entirety by the terms of the Partnership
Agreement. Following this subsection entitled "Partnership Units" is a section
entitled "AIMCO Stock." While the OP Units are the only securities being
registered pursuant to this Registration Statement, a description of the AIMCO
Stock is included herein to assist readers in a better understanding of the
relationship between the Partnership and AIMCO.
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,
46
<PAGE> 48
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 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 General Partner, at all times to be classified as
a REIT.
MANAGEMENT BY THE GENERAL PARTNER
Except as otherwise expressly provided in the Partnership Agreement, all
management powers over the business and affairs of the Partnership are
exclusively vested in the General Partner. No limited partner of the Partnership
(each, a "Limited Partner") 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 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 General Partner may
not be removed by the Limited Partners with or without cause, except with the
consent of the General Partner. 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 Partnership Agreement, the
General Partner, subject to the other provisions of the Partnership Agreement,
has 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 of the
Partnership and to effectuate the purposes of the Partnership. The 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 General
Partner determines to be appropriate. The General Partner is authorized to
execute, deliver and perform certain agreements and transactions on behalf of
the Partnership without any further act, approval or vote of the Partners.
Restrictions on General Partner's Authority. The General Partner may not
take any action in contravention of the Partnership Agreement. The General
Partner may 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: (i) except as
provided in the Partnership Agreement, amend, modify or terminate the
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 Partnership; (iii)
institute any proceeding for bankruptcy on behalf of the Partnership; or (iv)
subject to certain exceptions, 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.
Additional Limited Partners. The General Partner is authorized to admit
additional Limited Partners to the Partnership from time to time, on terms and
conditions and for such capital contributions as may be established by the
General Partner 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
General Partner is expressly authorized to cause the Partnership to issue
additional interests (i) upon the conversion, redemption or exchange of any
debt, OP 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 entity into
the Partnership if the applicable merger agreement provides that persons are to
receive interests in the Partnership in exchange for their interests in the
entity 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 the Agreement. Without limiting
the generality of the foregoing, the General Partner shall have authority to
specify (a) the allocations of items of
47
<PAGE> 49
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. Preferred Units are interests in the Partnership that have
distribution rights, or rights upon liquidation, winding up or dissolution, that
are superior or prior to the OP Units. No Person will 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.
CLASS B PARTNERSHIP PREFERRED UNITS
On August 4, 1997, in connection with AIMCO's issuance of 750,000 shares of
Class B Cumulative Convertible Preferred Stock, par value $.01 per share ("Class
B Preferred Stock"), the Partnership issued 750,000 Class B Partnership
Preferred Units (the "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 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 AIMCO Class A 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 OP Units. The number of 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.
CLASS C PARTNERSHIP PREFERRED UNITS
On December 23, 1997, in connection with AIMCO's issuance of 2,400,000
shares of Class C Cumulative Preferred Stock, par value $.01 per share ("Class C
Preferred Stock"), the Partnership issued 2,400,000 Class C Partnership
Preferred Units (the "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 Cumulative Preferred Stock, par value $.01 per share ("Class D
Preferred Stock"), the Partnership issued 4,200,000 Class D Partnership
Preferred Units (the "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 per unit ($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
If Class E Preferred Stock is issued in connection with the Insignia
Merger, the Partnership will concurrently issue an equal number of Class E
Partnership Preferred Units (the "Class E Partnership Preferred Units") to the
Special Limited Partner. The terms of the Class E Partnership Preferred Units
will be substantially the same as the terms of the Class E Preferred Stock.
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CLASS F PARTNERSHIP PREFERRED UNITS
If Class F Preferred Stock is issued in connection with the Insignia
Merger, the Partnership will concurrently issue an equal number of Class F
Partnership Preferred Units (the "Class F Partnership Preferred Units") to the
Special Limited Partner. The terms of the Class F Partnership Preferred Units
will be substantially the same as the terms of the Class F Preferred Stock.
CLASS G PARTNERSHIP PREFERRED UNITS
In July 1998, in connection with AIMCO's issuance of 4,050,000 shares of
Class G Cumulative Preferred Stock, par value $.01 per share (the "Class G
Preferred Stock"), the Partnership issued 4,050,000 Class G Partnership
Preferred Units (the "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 per unit ($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 14, 1998, in connection with AIMCO's issuance of 2,000,000 shares
of Class H Cumulative Preferred Stock, par value $.01 per share ("Class H
Preferred Stock"), the 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 Class H Preferred
Stock. The Class H Partnership Units entitle the Special Limited Partner to
receive quarterly cash distributions of $0.59375 per unit ($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.
HIGH PERFORMANCE UNITS
In January 1998, the Partnership sold an aggregate of 15,000 High
Performance Units to SMP and to three of AIMCO's non-employee 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 date (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 Partnership Agreement) occurs. If, on the Valuation Date, the
cumulative Total Return of the Class A Common Stock from January 1, 1998 to the
Valuation Date (the "Measurement Period") exceeds 115% of the cumulative Total
Return (as defined below) of a peer group index over the same period, and is at
least the equivalent of a 30% cumulative Total Return over three years (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 Partnership in the same amounts and at the same
times (subject to certain exceptions upon liquidation of the Partnership) 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 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 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
Partnership in the same amounts and at the same times (subject to certain
exceptions upon a liquidation of the Partnership) as would holders of 150 OP
Units. For purposes of determining the market value of Class A Common Stock or
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
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capitalization-weighted index with dividends reinvested of the most actively
traded real estate investment trusts, will be used as the peer group index for
purposes of the High Performance Units.
"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 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.
Upon the occurrence of a change of control, any holder of High Performance
Units may, subject to certain restrictions, require the Partnership to redeem
all or a portion of the High Performance Units held by such party in exchange
for a cash payment per unit equal to the market value of a share of Class A
Common Stock at the time of redemption. However, in the event that any High
Performance Units are tendered for redemption, the Partnership's obligation to
pay the redemption price is subject to the prior right of AIMCO to acquire such
High Performance Units in exchange for an equal number of shares of Class A
Common Stock (subject to certain adjustments).
DISTRIBUTIONS
Subject to the rights of holders of any outstanding Preferred Units, the
Partnership Agreement requires the General Partner to 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 (as defined in the
Partnership Agreement) generated by the Partnership during such quarter to the
General Partner, the Special Limited Partner and the holders of OP Units
("Unitholders") on the record date established by the General Partner with
respect to such quarter, in accordance with their respective interests in the
Partnership on such record date. Holders of any Preferred Units issued in the
future may have priority over the General Partner, the Special Limited Partner
and holders of OP Units with respect to distributions of Available Cash,
distributions upon liquidation or other distributions.
Distributions payable with respect to any interest in the 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 General Partner in its sole and absolute
discretion may distribute to the Limited Partners Available Cash on a more
frequent basis and provide for an appropriate record date. The Partnership
Agreement requires the General Partner 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 Partnership to distribute sufficient
amounts to enable the General Partner 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 Code, and the applicable
Treasury regulations promulgated under the Code, as amended from time to time
(the "Regulations") and (ii) avoid any federal income or excise tax liability of
AIMCO.
While certain of the debt instruments to which the Partnership is a party,
including, but not limited to, the aforementioned BOA Credit Facility and the
WMF Credit Facility, contain restrictions on the payment of distributions to
unitholders of the Partnership, the debt instruments allow the Partnership to
distribute sufficient amounts to enable the General Partner to transfer funds to
AIMCO which are then used to pay stockholder dividends thereby allowing AIMCO to
maintain its status as a REIT under the Code.
Distributions in Kind. No Unitholder has any right to demand or receive
property other than cash as provided in the Partnership 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
will be distributed in such a fashion as to ensure that the fair market value is
distributed and allocated in accordance with the Partnership Agreement.
Distributions Upon Liquidation. Subject to the rights of holders of any
outstanding Preferred Units, net proceeds from the sale or other disposition of
all or substantially all of the assets of the Partnership or a related
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series of transactions that, taken together, result in the sale or other
disposition of all or substantially all of the assets of the Partnership (a
"Terminating Capital Transaction"), and any other cash received or reductions in
reserves made after commencement of the liquidation of the Partnership, will be
distributed to the Unitholders in accordance with the Partnership Agreement.
Restricted Distributions. The Partnership Agreement prohibits the
Partnership and the General Partner, on behalf of the Partnership, from making a
distribution to any Unitholder on account of its interest in OP Units if such
distribution would violate Section 17-607 of the Act or other applicable law.
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."
ALLOCATIONS OF NET INCOME AND NET LOSS
OP Units. Net Income (as defined in the Partnership Agreement) and Net Loss
(as defined in the Partnership Agreement) of the Partnership will 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 the Partnership Agreement, an
allocation to a 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 Partnership Agreement and subject to the terms of
any outstanding Preferred Units, Net Income and Net Loss will be allocated to
the holders of OP Units in accordance with their respective OP Units at the end
of each fiscal year. The Partnership Agreement contains provisions for special
allocations intended to comply with certain regulatory requirements, including
the requirements of Regulations Sections 1.704-1(b) and 1.704-2. Except as
otherwise provided in the Partnership Agreement and subject to the terms of any
outstanding Partnership Preferred Units, for income tax purposes under the Code
and the Regulations, each Partnership item of income, gain, loss and deduction
will be allocated among the Unitholders in the same manner as its correlative
item of "book" income, gain, loss or deduction is allocated pursuant to the
Agreement.
Preferred Units. With respect to the Preferred Units, gross income and, if
necessary, gain will be allocated to the holders of the Preferred Units for any
fiscal year (and, if necessary, subsequent fiscal years) to the extent that the
holders of the Preferred Units receive a distribution on any Preferred Units
(other than an amount included in any redemption of Preferred Units). If any
Preferred 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 General Partner in its discretion will
determine) will be allocated to the holders of such class of Preferred Units to
the extent that the redemption amounts paid or payable with respect to the
Preferred Units so redeemed exceeds the aggregate capital contributions (net of
liabilities assumed or taken subject to by the Partnership) per Preferred Unit
allocable to the Preferred Units so redeemed and (ii) deductions and losses (in
such relative proportions as the General Partner in its discretion will
determine) will be allocated to the holders of such class of Preferred Units to
the extent that the aggregate Capital Contributions (net of liabilities assumed
or taken subject to by the Partnership) per Preferred Unit allocable to the
Preferred Units so redeemed exceeds the redemption amount paid or payable with
respect to the Preferred 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."
WITHHOLDING
The 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 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 the Partnership Agreement.
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RETURN OF CAPITAL
No Partner ("Partner" means the General Partner or Limited Partner, and
"Partners" means the General Partner and the Limited Partners) is entitled to
interest on its capital contribution or on such Partner's Capital Account.
Except (i) pursuant to the rights of Redemption set forth in the Agreement, (ii)
as provided by law, or (iii) pursuant to the terms of any outstanding Preferred
Units, no Partner has any right to demand or receive the withdrawal or return of
its capital contribution from the Partnership, except to the extent of
distributions made pursuant to the Partnership Agreement or upon termination of
the Partnership. Except to the extent otherwise expressly provided in the
Partnership Agreement and subject to the terms of any outstanding Preferred
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 OF QUALIFYING PARTIES
After the first anniversary of becoming a holder of OP Units, each
Unitholder and certain Assignees have the right, subject to the terms and
conditions set forth in the Partnership Agreement, to require the Partnership to
redeem all or a portion of the OP Units held by such party in exchange for a
cash amount based on the value of shares of AIMCO Class A Common Stock (a
"Redemption"). See Section 8.6 of the Partnership Agreement. The Partnership's
obligation to effect a Redemption, however, will not arise or be binding against
the Partnership until and unless AIMCO declines or fails to exercise its right
to purchase such OP Units pursuant to the Agreement.
On or before the close of business on the fifth business day after a
Unitholder gives the General Partner a notice of Redemption, the General Partner
may, in its sole and absolute discretion but subject to the restrictions on the
ownership of AIMCO Class A Common Stock imposed under AIMCO's Charter and the
transfer restrictions and other limitations thereof, elect to cause AIMCO to
acquire some or all of the tendered OP Units from the tendering party in
exchange for AIMCO Class A Common Stock, based on an exchange ratio of one share
of AIMCO Class A Common Stock for each OP Unit, subject to adjustment as
provided in the Partnership Agreement. The Partnership Agreement does not
obligate AIMCO or the General Partner to register, qualify or list any AIMCO
Class A Common Stock issued in exchange for OP Units with the Securities and
Exchange Commission, with any state securities commissioner, department or
agency, or with any stock exchange. AIMCO Class A Common Stock issued in
exchange for OP Units pursuant to the Partnership Agreement will contain legends
regarding restrictions under the Securities Act and applicable state securities
laws as AIMCO in good faith determines to be necessary or advisable in order to
ensure compliance with securities laws. In the event of a change of control,
holders of High Performance Units will have the same redemption rights as
holders of OP Units. See "-- High Performance Units."
PARTNERSHIP RIGHT TO CALL LIMITED PARTNER INTERESTS
Notwithstanding any other provision of the 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 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) by treating any Limited
Partner as if such Limited Partner had tendered for Redemption pursuant to the
Partnership Agreement the amount of OP Units specified by the General Partner,
in its sole and absolute discretion, by notice to the Limited Partner.
TRANSFERS AND WITHDRAWALS
Restrictions on Transfer. The Partnership Agreement restricts the
transferability of OP Units. Any transfer or purported transfer of an OP Unit
not made in accordance with the Partnership Agreement will be null and void ab
initio. Until the expiration of one year from the date on which a Unitholder
acquired OP Units, subject to certain exceptions, such Unitholder may not
transfer all or any portion of its OP Units to any transferee without the
consent of the General Partner, which consent may be withheld in its sole and
absolute discretion. After the expiration of one year from the date on which a
Unitholder acquired OP Units, such
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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
Partnership Agreement, including the General Partner's right of first refusal.
It is a condition to any transfer (whether or not 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 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 Partnership Agreement without the approval of the
General Partner, in its sole and absolute discretion.
In connection with any transfer of OP Units, the General Partner 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 and will not otherwise violate any federal or state securities
laws or regulations applicable to the 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 General Partner or 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 Section 7704 of the 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 General Partner, which consent may be given or
withheld by the General Partner in its sole and absolute discretion. If the
General Partner, 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 Partnership
Agreement. An Assignee will 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 OP Units assigned to such transferee and the rights to
transfer the OP Units provided in the Partnership Agreement, but will not be
deemed to be a holder of OP Units for any other purpose under the 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 the Partnership Agreement or
under the Act, fully remaining with the transferor Limited Partner).
Withdrawals. No Limited Partner may withdraw from the Partnership other
than as a result of a permitted transfer of all of such Limited Partner's OP
Units in accordance with the 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 General Partner. The General Partner may not transfer any
of its General Partner Interest or withdraw from the Partnership unless (i) the
Limited Partners consent or (ii) immediately after a merger of the General
Partner into another entity, 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 OP
Units.
ISSUANCE OF AIMCO CAPITAL STOCK BY AIMCO
Pursuant to the Agreement, upon the issuance of AIMCO capital stock, AIMCO
is generally obligated to contribute the cash proceeds or other consideration
received from such issuance to the Partnership in exchange for, in the case of
AIMCO Class A Common Stock, OP Units, or in the case of an issuance of AIMCO
Preferred Stock, Preferred 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.
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DILUTION
The General Partner has the power, without the consent of the Limited
Partners, to cause the Partnership to issue OP Units and Preferred Units. Any
such issuance may dilute the interests of existing Limited Partners. In
addition, the terms of the Preferred Units entitle the Unitholder to receive
preferential distributions of cash and a priority in liquidation, as well as
certain class voting rights.
AMENDMENT OF THE PARTNERSHIP AGREEMENT
By the General Partner Without the Consent of the Limited Partners. The
General Partner has the power, without the consent of the Limited Partners, to
amend the Partnership 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 the 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 Partnership Agreement not inconsistent with law
or with other provisions, or make other changes with respect to matters arising
under the Partnership Agreement that will not be inconsistent with law or with
the provisions of the 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 Partnership Agreement or contemplated by the Code or the
Regulations).
With the Consent of the Limited Partners. With the exception of the
circumstances described above whereby the General Partner may, without the
consent of the Limited Partners, amend the Partnership Agreement, amendments to
the Partnership Agreement require the Limited Partners' consent. Amendments to
the Partnership Agreement may be proposed by the General Partner or by holders
of a majority of the outstanding OP Units, excluding the Special Limited Partner
(a "Majority in Interest"). Following such proposal, the General Partner will
submit any proposed amendment to the Limited Partners. The General Partner 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
General Partner may deem appropriate. For purposes of obtaining a written
consent, the General Partner 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 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.
PROCEDURES FOR ACTIONS AND CONSENTS OF PARTNERS
Meetings of the Partners may be called by the General Partner and will be
called upon the receipt by the General Partner 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 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. 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 OP Units (or such other percentage as
is expressly required by the 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 OP
Units (or such other percentage as is expressly required by the Agreement for
the action in question). 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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RECORDS AND ACCOUNTING; FISCAL YEAR
The Partnership Agreement requires the General Partner to 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.
The books of the 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 General Partner determines to be
necessary or appropriate. To the extent permitted by sound accounting practices
and principles, the Partnership, the General Partner and AIMCO may operate with
integrated or consolidated accounting records, operations and principles. The
fiscal year of the Partnership is the calendar year.
REPORTS
As soon as practicable, but in no event later than one hundred and five
(105) days after the close of each calendar quarter and each Fiscal Year, the
General Partner 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 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 General
Partner 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
General Partner.
TAX MATTERS PARTNER
The General Partner is the "tax matters partner" of the Partnership for
federal income tax purposes. The tax matters partner is authorized, but not
required, to take certain actions on behalf of the Partnership with respect to
tax matters. In addition, the General Partner will arrange for the preparation
and timely filing of all returns with respect to the Partnership's income,
gains, deductions, losses and other items required of the 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 General
Partner with such information as may be reasonably requested by the General
Partner from time to time.
DISSOLUTION AND WINDING UP
Dissolution. The 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 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; (iii) 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; (iv) entry of a decree of
judicial dissolution of the Partnership pursuant to the provisions of the Act;
(v) the occurrence of a Terminating Capital Transaction; or (vi) the Redemption
(or acquisition by AIMCO, the General Partner and/or the Special Limited
Partner) of all OP Units other than OP Units held by the General Partner or the
Special Limited Partner.
Winding Up. Upon the occurrence of a Liquidating Event, the 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 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) will be responsible for overseeing the winding
up and dissolution of the Partnership and will take full account of the
Partnership's liabilities and property, and the 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 General
Partner,
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include AIMCO Stock) will be applied and distributed in the following order: (i)
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); (ii) second, to the
satisfaction of all 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 the
Partnership Agreement; (ii) 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);
(iv) fourth, to the satisfaction of all liquidation preferences of outstanding
Partnership Preferred Units, if any, and (v) 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.
AIMCO STOCK
While AIMCO capital stock is not being registered pursuant to this
Registration Statement, OP Units are, subject to certain conditions, redeemable
at the option of the Unitholder, and AIMCO may elect to issue shares of Class A
Common Stock for any such redemption. See "Partnership Units -- Redemption
Rights of Qualifying Parties." Accordingly, a description of the AIMCO capital
stock is included herein to assist readers in a better understanding of the
relationship between the Partnership and AIMCO.
GENERAL
AIMCO's Charter authorizes the issuance of up to 510,750,000 shares of
capital stock with a par value of $.01 per share, of which 496,027,500 shares
were classified as Class A Common Stock and 262,500 shares were classified as
Class B Common Stock as of August 31, 1998 (the Class A Common Stock and the
Class B Common Stock are collectively referred to as the "Common Stock"). As of
August 31, 1998, there were 48,106,837 shares of Class A Common Stock issued and
outstanding and 162,500 shares of Class B 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 Plan, AIMCO may issue up to 20,000,000 shares of 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.
In addition, AIMCO's Charter authorizes the issuance of up to 14,460,000
shares of preferred stock with a par value of $.01 per share, of which 750,000
shares are classified as Class B Preferred Stock, all of which are issued and
outstanding, 2,760,000 shares are classified as Class C Preferred Stock, of
which 2,400,000 shares are issued and outstanding, 4,600,000 shares are
classified as Class D Preferred Stock, of which 4,200,000 shares are issued and
outstanding, 4,050,000 shares are classified as Class G Preferred Stock, all of
which are issued and outstanding, and 2,300,000 shares are classified as Class H
Preferred Stock, of which 2,000,000 shares are issued and outstanding. Further,
if the Insignia Merger is consummated, shares of Class E Preferred Stock will
be, and shares of the Class F Preferred Stock may be, authorized and issued.
AIMCO's Board of Directors, by resolution or resolutions, may from time to time
classify and reclassify any unissued shares of capital 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 with respect to each class or
subclass of capital stock, and the number of shares constituting each class or
subclass, and to increase or decrease the number of shares of any such class or
subclass.
CLASS A COMMON STOCK
Holders of the Class A Common Stock are entitled to receive dividends, when
and as declared by the Board of Directors, 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
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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 common 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. For
purposes of calculating the amount of stock owned by a given individual, the
individual's Common Stock and OP Units are aggregated. Because the Board of
Directors 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 Board of Directors has adopted, and the
stockholders have approved, provisions of AIMCO's Charter restricting the
acquisition of shares of Common Stock.
Subject to certain exceptions specified in AIMCO's Charter, no holder may
own, or be deemed to own by virtue of various attribution and constructive
ownership provisions of the 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 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 OP Units are aggregated. The Board of Directors may waive the
Ownership Limit if evidence satisfactory to the 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 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 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 AIMCO's
Charter to remove the foregoing restrictions is duly adopted by the 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 that 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 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 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
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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
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 Code and Rule 13d-3 under the Exchange Act, more than a specified percentage
of the outstanding shares of Common Stock must file an affidavit with AIMCO
containing the information specified in AIMCO's 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 Board of Directors
deems necessary to comply with the provisions of the 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 Board of Directors determines that
maintenance of REIT status is no longer in the best interests of AIMCO.
CLASS B COMMON STOCK
In connection with the initial formation of AIMCO, Terry Considine, Peter
Kompaniez, Steven Ira and Robert Lacy, a former officer of AIMCO, acquired an
aggregate of 650,000 shares of AIMCO's Class B Common Stock (which was
authorized in the AIMCO Charter at that time). The Class B Common Stock does not
have voting or dividend rights and, unless converted into Class A Common Stock,
as described below, is subject to repurchase by AIMCO as described below. As of
December 31 of each of the years 1994 through 1998 (each, a "Year-End Testing
Date"), a number of the shares of Class B Common Stock outstanding as of such
date (the "Eligible Class B Shares") become eligible for automatic conversion
(subject to the Ownership Limit) into an equal number of shares of Class A
Common Stock (subject to adjustment upon the occurrence of certain events in
respect of the Class A Common Stock, including stock dividends, subdivisions,
combinations and reclassifications). Once Class B Common Stock has been
converted into Class A Common Stock, holders of such shares of converted Class A
Common Stock will have voting and dividend rights of Class A Common Stock
generally. Once converted or forfeited, the Class B Common Stock may not be
reissued by AIMCO.
The Eligible Class B Shares convert to Class A Common Stock if (i) AIMCO's
Funds from Operations Per Share (as defined below) reaches certain annual and
cumulative growth targets and (ii) the average market price for a share of Class
A Common Stock for a 90 calendar day period beginning on any day on or after the
October 1 immediately preceding the relevant Year-End Testing Date equals or
exceeds a specified target price. "Funds from Operations Per Share" or "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 interest 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.
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Set forth below for the remaining Year-End Testing Date is (i) the number
of shares of Class B Common Stock that become Eligible Class B Shares as of such
date, (ii) the annual FFO Per Share growth target (as a percentage increase in
FFO Per Share from the prior year), (iii) the cumulative FFO Per Share growth
target (in FFO Per Share) and (iv) the average market price target:
<TABLE>
<CAPTION>
ANNUAL FFO PER CUMULATIVE FFO AVERAGE
ELIGIBLE CLASS B SHARE GROWTH PER SHARE GROWTH MARKET
YEAR-END TESTING DATE SHARES(1) TARGET TARGET PRICE TARGET
--------------------- ---------------- -------------- ---------------- --------------
<S> <C> <C> <C> <C>
December 31, 1998.......... 162,500 8.5% $2.760 $26.373
</TABLE>
- ---------------
(1) Assumes that only the shares of Class B Common Stock outstanding as of
December 31, 1997 remain outstanding until converted into shares of Class A
Common Stock.
Any Class B Common Stock that has not been converted into Class A Common
Stock following December 31, 1998 will be subject to repurchase by AIMCO at a
price of $0.10 per share. Class B Common Stock is also subject to automatic
conversion upon the occurrence of certain events, including a change of control
(as defined in AIMCO's Charter). The Board of Directors may increase the number
of shares which are eligible for conversion as of any Year-End Testing Date and
may, under certain circumstances, accelerate the conversion of outstanding Class
B Common Stock at such time and in such amount as it may determine appropriate.
All of the 65,000 shares of Class B Common Stock eligible for conversion as
of the December 31, 1994 Year-End Testing Date, all of the 130,000 shares of
Class B Common Stock eligible for conversion as of the December 31, 1995
Year-End Testing Date, all of the 130,000 shares of Class B Common Stock
eligible for conversion as of December 31, 1996 and all of the 162,500 shares of
Class B Common Stock eligible for conversion as of December 31, 1997, have been
converted into shares of Class A Common Stock. As of December 31, 1997, the
outstanding Class B Common Stock was held as follows: 93,428 shares by Mr.
Considine, 41,438 shares by Mr. Kompaniez, 13,821 shares by Mr. Ira and 13,813
shares by Mr. Robert Lacy.
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") for $75.0
million. The Class B Preferred Stock has an aggregate liquidation value of $75
million and, with respect to dividend rights and rights upon liquidation,
dissolution or winding up of AIMCO, ranks (a) prior or senior to the Common
Stock, the Class E Preferred Stock, if any, to be issued in the Insignia Merger,
and any other class or series of capital stock of AIMCO if the holders of the
Class B 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 B Junior
Stock"), (b) on a parity with the Class C Preferred Stock, the Class D Preferred
Stock, the Class F Preferred Stock, if any, to be issued in the Insignia Merger,
the Class G Preferred Stock, the Class H Preferred Stock, and any other class or
series of capital stock of AIMCO if the holders of such class of stock or series
and the Class B Preferred Stock shall be entitled to the receipt of dividends or
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 B Parity Stock") and (c) 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 B Preferred Stock
("Class B Senior Stock"). Holders of the Class B Preferred Stock are entitled to
receive, when, as and if declared by the 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.
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Holders of Class B Preferred Stock, voting as a class with the holders of
all Class B Parity Stock, will be entitled to elect (i) two directors of AIMCO
if six quarterly dividends (whether or not consecutive) on the Class B Preferred
Stock or any 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 and, in any such case, the
number of directors constituting the Board of Directors shall be increased by
one or two, as the case may be (if not already increased by reason of similar
types of provisions with respect to shares of Class B Parity Stock). The
affirmative vote of the holders of 66 2/3% of the outstanding shares of Class B
Preferred Stock will be required to amend AIMCO's Charter in any manner that
would adversely affect the rights of the holders of Class B Preferred Stock, and
to approve the issuance of any capital stock that ranks senior to the Class B
Preferred Stock with respect to payment of dividends or upon liquidation,
dissolution, winding up or otherwise. If the IRS should make a final
determination that AIMCO does not qualify as a REIT in accordance with Sections
856 through 860 of the Code, the Base Rate for the quarterly cash dividends will
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 real estate investment trust pursuant to
Sections 856 through 860 of the Code, or (ii) upon the occurrence of a change of
control (as defined in the Preferred Share Purchase Agreement). The Preferred
Share Purchase Agreement also provides that, so long as the Preferred Share
Investor owns Class B Preferred Stock with an aggregate liquidation preference
of at least $18.75 million, neither AIMCO, the 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 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 Articles Supplementary
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 Code and Rule 13d-3 under the Exchange Act, shares of Class B
Preferred Stock with a value in 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 (the "Class B 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 real
estate investment trust. 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 real estate
investment trust 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 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
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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 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 Class C
Preferred Stock in an underwritten public offering for net proceeds of
approximately $57.9 million. The Class C Preferred Stock, with respect to
dividend rights and rights upon liquidation, dissolution or winding up of AIMCO,
ranks (a) prior or senior to the Common Stock, the Class E Preferred Stock, if
any, to be issued in the Insignia Merger, and any other class or series of
capital stock of AIMCO if the holders of the Class C 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 C Junior Stock"), (b) on a parity with
the Class B Preferred Stock, the Class D Preferred Stock, the Class F Preferred
Stock, if any, to be issued in the Insignia Merger, the Class G Preferred Stock,
the Class H 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 of one over the other ("Class C
Parity Stock") and (c) 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").
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 fund 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 of Directors shall be increased by two
(if not already increased by reason of similar types of provisions with respect
to shares of Class C Parity Stock) 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.
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There are ownership restrictions with respect to the Class C Preferred
Stock that are similar to those with respect to the Class B Preferred Stock.
CLASS D PREFERRED STOCK
On February 13, 1998, AIMCO issued 4,200,000 shares of its Class D
Preferred Stock in an underwritten public offering, for net proceeds of
approximately $101.5 million. The Class D Preferred Stock, with respect to
dividend rights and rights upon liquidation, dissolution or winding up of AIMCO,
ranks (a) prior or senior to the Common Stock, the Class E Preferred Stock, if
any, to be issued in the Insignia Merger, and any other class or series of
capital stock of AIMCO if the holders of the Class D 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 D Junior Stock"), (b) on a parity with
the Class B Preferred Stock, the Class C Preferred Stock, the Class F Preferred
Stock, if any, to be issued in the Insignia Merger, the Class G Preferred Stock,
the Class H 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 of one over the other ("Class D
Parity Stock") and (c) 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 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 of Directors shall be increased by two
(if not already increased by reason of similar types of provisions with respect
to shares of Class D Parity Stock) 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.
There are ownership restrictions with respect to the Class D Preferred
Stock that are similar to those with respect to the Class B Preferred Stock.
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CLASS E PREFERRED STOCK
If the Insignia Merger is approved by the stockholders of AIMCO, upon
consummation of the Insignia Merger, AIMCO will issue to Insignia stockholders,
in the aggregate, a number of shares of Class E Preferred Stock approximately
equal to $303 million divided by the AIMCO Index Price, or, if AIMCO
stockholders do not approve the Insignia Merger, a number of shares of Class E
Preferred Stock approximately equal to $203 million divided by the AIMCO Index
Price, in both cases less certain cash amounts that AIMCO may elect to pay under
certain circumstances. The "AIMCO Index Price" is defined as the average market
price of Class A Common Stock during a fixed period prior to the Insignia
Merger, subject to a maximum average price of $38.00 per share. The AIMCO Index
Price is not intended to and will not necessarily represent the fair market
value of Class E Preferred Stock. The Class E Preferred Stock, with respect to
dividend rights and rights upon liquidation, dissolution or winding up of AIMCO,
ranks (a) prior or senior to Common Stock and any other class or series of
capital stock of AIMCO if holders of the Class E Preferred Stock are to 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 E Junior Stock"), (b) on a parity with
any class or series of capital stock of AIMCO if the holders of such class or
series of stock and the Class E 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 E Parity Stock") and (c) junior to the Class B
Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the
Class F Preferred Stock, if any, to be issued in the Insignia Merger, the Class
G Preferred Stock, the Class H Preferred Stock and any other 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
E Preferred Stock ("Class E Senior Stock").
On any date (each, a "Dividend Payment Date") on which cash dividends are
paid on the Class A Common Stock prior to the Call Date (as defined below),
holders of Class E Preferred Stock shall be entitled to receive cash dividends
payable in an amount per share of Class E Preferred Stock equal to the per share
dividend payable on Class A Common Stock on such Dividend Payment Date. Such
dividends shall be cumulative from the date of original issue, and shall be
payable quarterly in arrears on the Dividend Payment Dates, commencing on the
first Dividend Payment Date after the date of original issue. 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 E
Junior Stock, the holders of Class E Preferred Stock shall be entitled to
receive a liquidation preference of $1 per share plus the Special Dividend if
such dividend is unpaid on the date of the final distribution to such holders
(collectively, the "Class E Liquidation Preference"), and thereafter each share
of Class E Preferred Stock shall have the same rights with respect to assets of
AIMCO as one share of Class A Common Stock.
On or after the twentieth anniversary of the consummation of the Insignia
Merger, AIMCO may redeem shares of Class E Preferred Stock, in whole or in part,
at a cash redemption price equal to the sum of (i) the greater of (A) the
Current Market Price (as defined in the Insignia Merger Agreement) of the Class
A Common Stock on the date specified for redemption by AIMCO in a notice sent to
holders of Class E Preferred Stock (the "Class E Call Date") or (B) the AIMCO
Index Price but determined without giving effect to the limitation of $38.00 per
share, plus (ii) all accrued and unpaid dividends to the Class E Call Date. The
Class E Preferred Stock has no stated maturity and will not be subject to any
sinking fund or mandatory redemption provisions.
Holders of shares of Class E Preferred Stock shall be entitled to one-half
( 1/2) of one vote with respect to all matters in which holders of Class A
Common Stock shall be entitled to vote thereon. In addition, if any portion of
the Special Dividend has yet to be declared and paid to the holders of Class E
Preferred Stock on January 15, 1999, or if distributions on Class E Preferred
Stock or any series or class of Preferred Stock of AIMCO shall be in arrears for
six or more quarterly periods, the number of directors constituting the AIMCO
Board of Directors shall be increased by two (if not already increased by reason
of similar types of provisions of any other series of Preferred Stock of AIMCO)
and the holders of Class E Preferred Stock (voting together
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as a single class with all other shares of Class E Parity Stock which are
entitled to similar voting rights) will be entitled to vote for the election of
the additional directors of AIMCO. Such right shall continue until full
cumulative dividends for all past dividend periods on all shares of Preferred
Stock of AIMCO, including any shares of Class E Preferred Stock, have been paid
or declared and set apart for payment.
On any date on which the Special Dividend, or any portion thereof, is paid
(which may be declared by the AIMCO Board in its sole discretion), the holders
of Class E Preferred Stock shall be entitled to receive an amount per share of
Class E Preferred Stock equal to the Special Dividend divided by the Series E
Conversion Ratio (as defined in the Insignia Merger Agreement). 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
shall be declared or paid or set apart for payment by AIMCO on any other class
or series of AIMCO capital 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 holder of such share (the "Conversion Date"). If AIMCO at any
time following the consummation of the Insignia Merger pays a dividend or makes
a distribution, subdivides, 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.
CLASS F PREFERRED STOCK
If the Insignia Merger is not approved by the stockholders of AIMCO, but
the Distribution and the Insignia Merger Agreement are approved by the
stockholders of Insignia, upon consummation of the Insignia Merger, AIMCO will
issue to Insignia stockholders, in the aggregate, a number of shares of Class F
Preferred Stock approximately equal to $100 million divided by the AIMCO Index
Price. The AIMCO Index Price is not intended to and will not necessarily
represent the fair market value of Class F Preferred Stock. AIMCO will not issue
any shares of Class F Preferred Stock in the event that AIMCO stockholders
approve the Insignia Merger. The Class F Preferred Stock ranks (a) prior to the
Common Stock, the Class E Preferred Stock, if any, to be issued in the Insignia
Merger, and any other class or series of capital stock of AIMCO if holders of
the Class F 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 F Junior
Stock"), (b) on a parity with the Class B Preferred Stock, the Class C Preferred
Stock, the Class D Preferred Stock, Class G Preferred Stock, the Class H
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 F 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 F Parity Stock") and (c)
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 F Preferred Stock ("Class F Preferred
Stock").
On any Dividend Payment Date on which cash dividends are paid on the Class
A Common Stock prior to the Call Date (as defined below), holders of Class F
Preferred Stock are entitled to receive dividends payable in cash in an amount
per share of Class F Preferred Stock equal to the greater of (i) 2.5% of the
AIMCO Index Price (determined without giving effect to the limitation of
$38.00), increasing by 0.25% after each anniversary of the consummation of the
Insignia Merger through the fifth anniversary thereof, subject to a maximum of
3.75%, and (ii) the per share dividend payable on Class A Common Stock on such
Dividend Payment Date. Such dividends shall be cumulative from the date of
original issue, and shall be payable quarterly in arrears on the Dividend
Payment Dates, commencing on the first Dividend Payment Date after the date of
original issue. 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 F Junior Stock, the holders of Class F Preferred Stock
shall be entitled to receive an amount per share of Class F Preferred Stock
equal to the AIMCO Index Price (determined without giving effect to the
limitation of $38.00), and
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thereafter each share of Class F Preferred Stock shall have the same rights with
respect to assets of AIMCO as one share of Class A Common Stock.
On and after the twentieth anniversary of the consummation of the Insignia
Merger, AIMCO may redeem shares of Class F Preferred Stock, in whole or in part,
at a cash redemption price equal to the sum of (i) the greater of (A) the
Current Market Price of the Class A Common Stock on the date specified for
redemption by AIMCO in a notice sent to holders of Class F Preferred Stock (the
"Class F Call Date") or (B) the AIMCO Index Price (determined without giving
effect to the limitation of $38.00), plus (ii) all accrued and unpaid dividends
to the Class F Call Date. The Class F Preferred Stock has no stated maturity and
will not be subject to any sinking fund or mandatory redemption provisions.
Holders of shares of Class F Preferred Stock have no voting rights, except
that if distributions on Class F Preferred Stock or any series or class of Class
F 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 (if not
already increased by reason of similar types of provisions of any other series
of Preferred Stock of AIMCO) and the holders of Class F Preferred Stock (voting
together as a single class with all other shares of Class F Parity Stock, which
are entitled to similar voting rights) will be entitled to vote for the election
of the additional directors of AIMCO. Such right shall continue until full
cumulative dividends for all past dividend periods on all shares of Preferred
Stock of AIMCO, including any shares of Class F Preferred Stock, have been paid
or declared and set apart for payment.
Each share of Class F Preferred Stock shall be automatically converted into
one share of Class A Common Stock without any action on the part of AIMCO or the
holder of such share immediately upon the approval of such conversion by the
holders of two-thirds of the outstanding shares of Class A Common Stock. If
AIMCO at any time following the consummation of the Insignia Merger pays a
dividend or makes a distribution, subdivides, 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 F Preferred Stock.
CLASS G PREFERRED STOCK
In July 1998, AIMCO issued 4,050,000 shares of Class G Preferred Stock in
an underwritten public offering for net proceeds of approximately $98.0 million.
The Class G Preferred Stock, with respect to dividend rights and rights upon
liquidation, dissolution or winding up of AIMCO, ranks (a) prior or senior to
the Common Stock, the Class E Preferred Stock, if any, to be issued in the
Insignia Merger, and any other class or series of capital stock of AIMCO if the
holders of the Class G 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 G Junior Stock"), (b) on parity with the Class B Preferred Stock,
the Class C Preferred Stock, the Class D Preferred Stock, the Class F Preferred
Stock, if any, to be issued in the Insignia Merger, the Class H 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 of one over the other ("Class G Parity Stock") and (c) 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 preference of $25 per share (the "Class G Liquidation
Preference"), plus an amount equal to all accumulated,
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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 amounts 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 of Directors shall be increased by two
(if not already increased by reason of similar types of provisions with respect
to shares of Class G Parity Stock) 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.
There are ownership restrictions with respect to the Class G Preferred
Stock that are similar to those with respect to the Class B Preferred Stock.
CLASS H PREFERRED STOCK
On August 14, 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, with respect to dividend rights and rights
upon liquidation, dissolution or winding up of AIMCO, ranks (a) prior or senior
to the Common Stock, the Class E Preferred Stock, if any, to be issued in the
Insignia Merger, and any other class or series of capital Stock of AIMCO if the
holders of the Class H 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 H Junior Stock"), (b) on a parity with the Class B Preferred
Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class F
Preferred Stock, if any, to be issued in the Insignia Merger, the Class G
Preferred Stock and with any other class or series of capital stock of AIMCO if
the holders of such class or series of stock 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 of one over the other ("Class H Parity Stock") and (c)
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 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
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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 with respect to the Class H Preferred
Stock that are similar to those with respect to the Class B Preferred Stock.
BUSINESS COMBINATIONS
Under the Maryland General Corporation Law (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
or associate 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 of AIMCO, ownership of OP Units is treated
as beneficial ownership of the shares of AIMCO Common Stock which may be issued
in exchange for the OP Units when such OP Units are tendered for redemption. 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.
AIMCO's Board has not passed such a resolution.
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 acquirer or by officers or directors who
are employees of the corporation. "Control shares" are voting shares of stock
that, if aggregated with all other
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shares of stock previously acquired by that person, would entitle the acquirer
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 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.
For purposes of determining whether a Person is an Interested Stockholder of
AIMCO, ownership of OP Units is treated as beneficial ownership of the shares of
AIMCO Common Stock which may be issued in exchange for the OP Units may be
redeemed.
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 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 acquirer 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. 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.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain federal income tax consequences
resulting from the acquisition of, holding, exchanging, and otherwise disposing
of OP Units and shares of AIMCO's capital stock ("AIMCO Stock"). This discussion
is based upon the Code, regulations promulgated by the U.S. Treasury Department
(the "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, possibly retroactively. 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 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). This summary assumes that investors will hold their OP
Units and 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.
EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS TAX ADVISOR REGARDING THE
FEDERAL, STATE, LOCAL AND FOREIGN INCOME AND OTHER TAX CONSEQUENCES OF
ACQUIRING, HOLDING, EXCHANGING, OR OTHERWISE DISPOSING OF OP UNITS OR OF AIMCO
STOCK AND OF AIMCO'S ELECTION TO BE SUBJECT TO TAX, FOR FEDERAL INCOME TAX
PURPOSES, AS A "REAL ESTATE INVESTMENT TRUST."
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TAXATION OF THE PARTNERSHIP AND THE PARTNERS
GENERAL
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 credits ("Partnership Tax Items") for each taxable year during which he is a
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.
Accordingly, if the Partnership is characterized as a "partnership" for
federal income tax purposes, a Partner will be (i) required to include in income
his allocable share of any Partnership income or gains and (ii) entitled to
deduct his allocable share of any Partnership deductions or losses, but only to
the extent of the Partner's adjusted tax basis in his Partnership interest and
subject to the "at risk" and "passive activity loss" rules discussed below under
the heading "Loss Limitations."
Some partnerships are, for federal income tax purposes, characterized not
as a partnership but as an association taxable as a corporation or as a
"publicly traded partnership" taxable as a corporation. 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 Partnership believes that the 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 Partnership believes that the OP
Units should not be considered readily tradeable on a secondary market or the
substantial equivalent thereof. The determination of whether interests in a
partnership are readily tradeable 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 Partnership).
Accordingly, there can be no assurance that the Partnership is not, or will not
become, a publicly traded partnership.
If the Partnership were characterized 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
Partnership believes that more than 90% of the Partnership's gross income
consists of qualifying income, and therefore, that the Partnership would not be
taxable as a corporation even if it were characterized as a publicly traded
partnership. If the Partnership were characterized as a publicly traded
partnership, however, each Partner would be subject to special rules under
section 469 of the Code. See "Loss Limitations -- Passive Activity Loss
Limitation" below.
If the Partnership were characterized 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 the Partners would be subject to tax in the
same manner as stockholders of a corporation. Thus, the 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 Partners, at
regular federal corporate income tax rates, thereby reducing the amount of any
cash available for distribution to the Partners, which reduction could also
materially and adversely impact the liquidity and value of the Partnership. In
addition, Partnership Tax Items would not be passed through to the Partners and
the Partners would not be subject to tax on the income earned by the
Partnership. Distributions received by a Partner from the 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 Partnership, and the excess, if any, as a nontaxable return of
capital to the extent of the Partner's adjusted tax basis in his Partnership
interest (without taking into account Partnership liabilities), and thereafter
as gain from the sale of a capital asset.
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Characterization of the 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 "Taxation of AIMCO and AIMCO
Stockholders -- Tax Aspects of AIMCO's Investments in Partnerships" below.
No assurances can be given that the IRS would not challenge the status of
the Partnership as a "partnership" for federal income tax purposes or that a
court would not reach a result contrary to such position. Accordingly, each
prospective investor is urged to consult his tax advisor regarding the treatment
of the Partnership as a "partnership" for federal income tax purposes.
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 a partner's interest in the partnership is equal to (A) the sum of the
adjusted tax basis of the property contributed by the partner to the partnership
in exchange for an interest in the partnership and the amount of cash, if any,
contributed by the partner to the partnership, (B) reduced, but not below zero,
by the partner's allocable share of partnership distributions, deductions, and
losses, (C) increased by the partner's allocable share of partnership income and
gains, and (D) increased by the partner's allocable share of partnership
liabilities and decreased by the partner's liabilities assumed by the
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, a partner's federal income tax liability in respect of his
allocable share of partnership taxable income for a particular taxable year may
exceed the amount of cash, if any, received by the partner from the partnership
during such year.
If cash distributions, including a "deemed" cash distribution as discussed
below, received by a Partner in any taxable year exceed his allocable share of
the Partnership's taxable income for the year, the excess will constitute, for
federal income tax purposes, a return of capital to the extent of such Partner's
adjusted tax basis in his Partnership interest. Such return of capital will not
be includible in the taxable income of the Partner, for federal income tax
purposes, but it will reduce, but not below zero, the adjusted tax basis of the
Partnership interest held by the Partner. If a Partner's tax basis in his
Partnership interest is reduced to zero, a subsequent cash distribution received
by the Partner will be subject to tax as capital gain income, but only if, and
to the extent that, such distribution exceeds the subsequent positive
adjustments, if any, to the tax basis of the Partner's Partnership interest as
determined at the end of the taxable year during which such distribution is
received. A decrease in a Partner's share of the 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.
TAX CONSEQUENCES UPON CONTRIBUTION OF PROPERTY TO THE PARTNERSHIP
Generally, neither the contributing partner nor the partnership will
recognize a gain or loss, for federal income tax purposes, upon a contribution
of property to the partnership in exchange for an interest in the partnership.
Notwithstanding this general rule of nonrecognition, a Partner may recognize a
gain where a Partner contributes to the Partnership property that is subject to
liabilities, and the amount of the liabilities transferred by the Partner to the
Partnership exceeds the amount of the Partnership liabilities allocated to the
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 from the Partnership. If a Partner transfers to the
Partnership an interest in another partnership (the "Underlying Partnership") in
exchange for an OP Unit, the Partner will be treated, for federal income tax
purposes, as having transferred to the Partnership his allocable share of the
liabilities of the Underlying Partnership, which could result in, or
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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 Partner's adjusted tax basis in his Partnership
interest and thereafter as capital gain.
If a Partner contributes property to the Partnership in which the adjusted
tax basis of the property differs from its fair market value, 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. The amount of
such unrealized gain or unrealized loss is generally equal to the difference
between the fair market value of 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. The general purpose
underlying this provision is to specially allocate certain Partnership Tax Items
in order to place both the contributing and noncontributing 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.
Regulations provide the Partnership with several alternative methods and allow
the Partnership to adopt any other reasonable method to make allocations to
reduce or eliminate Book-Tax Differences. The General Partner, in its discretion
and in a manner consistent with the Regulations, will select and adopt a method
of allocating Partnership Tax Items for purposes of eliminating such
disparities.
LOSS LIMITATIONS
Basis Limitation. To the extent that a Partner's allocable share of
Partnership deductions and losses exceeds his adjusted tax basis in the
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 Partner 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 Partnership interest held by such Partner, but only to the extent
permitted under the "at risk" and "passive activity loss" rules discussed below.
"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 under the at risk rules, 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 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, a
Limited Partner who is an individual investor, as well as certain other types of
investors, would not be able to use losses from the 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 Partner 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 an OP Unit by the Limited Partner, regardless of whether
such Partner has received any passive activity income during the year of
disposition.
If the Partnership were characterized as a publicly traded partnership,
each Partner would be required to treat any loss derived from the Partnership
separately from any income or loss derived from any other publicly
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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
Partnership which are carried forward may only be offset against future income
of the Partnership. Moreover, unlike other passive activity losses, suspended
losses attributable to the Partnership will only be allowed upon the complete
disposition of the Partner's "entire interest" in the Partnership (rather than
upon the disposition of an interest in an "activity").
SALE, REDEMPTION, OR EXCHANGE OF A PARTNERSHIP INTEREST
In general, a Limited Partner will recognize a capital 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. Such
gain or loss will be equal to the difference between (i) the sum of the amount
realized in the transaction, which in the case of the receipt of shares of AIMCO
Stock will be an amount equal to their fair market value at the time that the
transaction is consummated, and the amount of Partnership liabilities allocable
to the OP Unit at such time and (ii) the Limited Partner's tax basis in the OP
Unit disposed of, which tax basis will be adjusted for the Limited Partner's
allocable share of the Partnership's income or loss for the taxable year of the
disposition.
If the Partnership redeems a Unitholder's OP Units for cash, the tax
consequences generally would be the same as described in the preceding
paragraphs, except that if the Partnership redeems less than all of a
Unitholder's OP Units, the Unitholder would recognize no taxable loss and would
recognize taxable gain only to the extent that the cash, plus the amount of
Partnership liabilities allocable to the redeemed OP Units, exceeded the
Unitholder's adjusted tax basis in all of such Unitholder's OP Units immediately
before the redemption.
Under the recently enacted Internal Revenue Service Restructuring and
Reform Act of 1998, 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 a
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 a
Unitholder's share of "unrealized receivables" of the 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 of individuals and
certain other noncorporate taxpayers for net capital gains attributable to the
sale of depreciable real property (which may be deemed to include an interest in
a 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."
TAXATION OF AIMCO AND AIMCO STOCKHOLDERS
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, the
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. AIMCO believes that it was organized in conformity with the
requirements for qualification as a REIT, and that its method of operation since
formation and proposed method of future operation will enable it to meet the
requirements for qualification and taxation as a REIT under the Code. Such
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. Accordingly, no assurance can be given that
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the actual results of AIMCO's operations for any one taxable year will satisfy
such requirements. See "-- Failure to Qualify" below. No assurance can be given
that the IRS will not challenge AIMCO's eligibility for taxation as a REIT.
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 subchapter 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 basis of such
assets in the hands of the subchapter C corporation (such as the assets to be
acquired from Insignia in the Insignia Merger), then, under Treasury regulations
not yet promulgated, the subchapter C corporation will be required to recognize
any net Built-In Gain (as defined below) that would have been realized if it 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 if it recognizes gain on the disposition of any such assets during the
ten-year period beginning on the day on which it acquires such assets, at the
highest regular corporate tax rate on such gain to the extent of the excess, if
any, of the fair market value over the adjusted basis of such assets as of the
beginning of the ten-year period ("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 that any such asset is sold within
the specified ten-year period. It should be noted that AIMCO has acquired (and
will acquire in the Insignia Merger, if consummated) 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 acquisition 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. AIMCO's 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.
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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 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, 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 partnerships and limited liability companies in which it has ownership
interests (the "Subsidiary Partnerships") 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 other
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) are 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.
The Management Subsidiaries receive management fees and other income. A
portion of such fees and other income will accrue to AIMCO through distributions
from the Management Subsidiaries that will be 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. 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,
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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 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 Partnership's
total assets and the value of the 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 Partnership's
ownership interests in the Management Subsidiaries disqualifies AIMCO from
treatment as a REIT.
AIMCO's indirect interests in the Partnership and other Subsidiary
Partnerships are 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. AIMCO, in order to qualify as a REIT, 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 (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
Partnership) and (ii) the inclusion of certain income by AIMCO for federal
income tax purposes. In
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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 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) (such as Insignia), 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. In the Insignia Merger,
AIMCO will succeed to the earnings and profits of Insignia and, therefore, AIMCO
must distribute such earnings and profits effective on or before December 31,
1998. Insignia has retained independent certified public accountants to
determine Insignia's earnings and profits through the effective time of the
Insignia Merger for purposes of this requirement. The determination of the
independent certified public accountants will be based upon Insignia's tax
returns as filed with the IRS and other assumptions and qualifications set forth
in the reports issued by such accountants. Any adjustments to Insignia's income
for taxable years ending on or before the closing of the Insignia Merger,
including as a result of an examination of its returns by the IRS or the receipt
of certain indemnity or other payments, could affect the calculation of
Insignia'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 Insignia 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 Insignia as open for review for purposes of determining the amount of such
earnings and profits. Additionally, if the Special Dividend is not treated as a
dividend under the Code, AIMCO may, depending upon the amount of other
distributions made by AIMCO subsequent to the Insignia Merger, fail to
distribute an amount equal to Insignia's earnings and profits. AIMCO's failure
to distribute an amount equal to such earnings and profits effective on or
before December 31, 1998, would result in AIMCO's failure to 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 Partnership. In general, partnerships are "pass-through" entities
that are not subject to federal income tax. Rather, 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 "-- Taxation of AIMCO and AIMCO Stockholders -- General -- Ownership of
Partnership Interests."
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Entity Classification. AIMCO's direct and indirect investment in Subsidiary
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 "-- Taxation of AIMCO and AIMCO Stockholders -- Asset
Tests" and "-- Taxation of AIMCO and AIMCO Stockholders -- Income Tests"), and
in turn could prevent AIMCO from qualifying as a REIT. See "-- 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. As discussed above, under
the Code and the 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. See "-- Taxation of the Partnership and the Partners -- Tax
Consequences Upon Contribution of Property to the Partnership." The 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 Regulations provide for a
similar allocation of such items to the other partners. These rules apply to the
contribution by AIMCO to the Partnership of the cash proceeds received in any
offerings of its stock.
In general, certain holders of OP Units will be allocated lower amounts of
depreciation deductions for tax purposes and increased taxable income and gain
on sale by the Partnership or other Subsidiary Partnerships of the contributed
Owned 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 Owned Properties in the hands of the 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 "-- Taxation of AIMCO and AIMCO
Stockholders -- Annual Distribution Requirements."
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
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. The
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 to make such occasional sales of the Owned Properties, including
peripheral land, as are consistent with AIMCO's investment objectives.
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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 Partnership, and interest paid by the Management Subsidiaries on certain
notes held by the 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
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, net capital
gains attributable to the sale of depreciable real property held for more than
12 months are subject to a 25% maximum federal income tax rate to the extent of
previously claimed depreciation.
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, 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, 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.
In general, any loss upon a sale or exchange of shares 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.
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 such 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
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subject to U.S. tax at graduated rates, in the same manner as U.S. stockholders
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).
Non-Dividend Distributions. Unless AIMCO Stock constitutes a United States
Real Property Interest (a "USRPI"), 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 the
Foreign Investment in Real Property Tax Act of 1980 ("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 rate 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.
Disposition of Stock of AIMCO. 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
and, therefore, the sale of AIMCO Stock should not be subject to taxation under
FIRPTA. Because most AIMCO Stock is 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 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 Regulations) on an established securities market (e.g.,
the New York Stock Exchange, on which the Class A Common Stock is listed) and
(ii) the selling Non-U.S. Holder held 5% or less of AIMCO's outstanding stock at
all times during a specified testing period.
If gain on the sale of stock of AIMCO were subject to taxation under
FIRPTA, the Non-U.S. Holder 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: (i) 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, or (ii) 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
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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
non-foreign status to AIMCO. The IRS has issued final Regulations regarding the
backup withholding rules as applied to Non-U.S. Holders. Those final 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 the 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 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.
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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 Partnership. For example, a
proposal issued by President Clinton on February 2, 1998, if enacted into law,
may adversely affect the ability of AIMCO to expand the present activities of
its Management Subsidiaries. It cannot be predicted whether, when, in what
forms, or with what effective dates, the tax laws applicable to AIMCO or the
Partnership, or an investment in AIMCO or the Partnership, will be changed.
STATE, LOCAL AND FOREIGN TAXES
The Partnership and its partners and AIMCO and its stockholders may be
subject to state, local or foreign taxation in various state, local or foreign
jurisdictions, including those in which they transact business or reside. The
state, local or foreign tax treatment of the Partnership and its partners and
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 Partnership or AIMCO.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Partnership Agreement requires the Partnership to indemnify the
directors and officers of the General Partner (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 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 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 advanced if a final judicial decision is rendered that such Indemnitee
did not meet the standard of conduct permitting indemnification under the
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 Partnership Agreement or applicable law.
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The following financial statements are incorporated herein by reference:
(i) the Consolidated Balance Sheets of AIMCO Properties, L.P. as of
December 31, 1997 and 1996 and the related consolidated statements of
income, partners' capital and cash flows for the years ended December 31,
1997, 1996 and 1995, together with the Report of Independent Auditors, set
forth on pages F-2 through F-33 of this Registration Statement;
(ii) the consolidated financial statement schedule of real estate and
accumulated depreciation as of December 31, 1997 of AIMCO Properties, L.P.
set forth on pages F-34 through F-38 of this Registration Statement;
(iii) The Consolidated Balance Sheets of AIMCO Properties, L.P. as of
June 30, 1998 and December 31, 1997 and the related consolidated statements
of income and cash flows for the three and six months ended June 30, 1998
and 1997, set forth on pages F-39 through F-55 of this Registration
Statement;
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(iv) the Pro Forma Consolidated Balance Sheet of AIMCO Properties,
L.P. (Pre-Insignia Merger) as of June 30, 1998 and the Pro Forma
Consolidated Statements of Operations for the year ended December 31, 1997
and the six months ended June 30, 1998, set forth on pages F-56 through
F-72 of this Registration Statement;
(v) the Pro Forma Consolidated Balance Sheet of AIMCO Properties, L.P.
(Insignia Merger) as of June 30, 1998 and the Pro Forma Consolidated
Statements of Operations for the year ended December 31, 1997 and the six
months ended June 30, 1998, set forth on pages F-73 through F-91 of this
Registration Statement;
(vi) the Consolidated Balance Sheets of NHP Incorporated as of
December 31, 1996 and 1995 and the related consolidated statements of
operations, changes in shareholders' equity and cash flows for the years
ended December 31, 1996, 1995 and 1994, together with the Report of
Independent Public Accountants, included as Exhibit 99.4 to Amendment No. 3
to AIMCO's Current Report on Form 8-K, dated April 16, 1997;
(vii) the Combined Balance Sheets of NHP Real Estate Companies, as of
December 31, 1996 and 1995 and March 31, 1997 (unaudited), and the related
combined statements of operations, changes in shareholders' equity
(deficit) and partners' capital (deficit), net and cash flows for each of
the three years in the period ended December 31, 1996, and for the three
months ended March 31, 1997 (unaudited) and 1996 (unaudited), together with
the Report of Independent Public Accountants included as Exhibit 99.5 to
Amendment No. 5 to AIMCO's Current Report on Form 8-K, dated June 3, 1997;
(viii) the Balance Sheets of NHP Southwest Partners, L.P. as of
December 31, 1996 and 1995 and the related combined statements of
operations, changes partners' capital, net and cash flows for the year
ended December 31, 1996 and for the period from January 20, 1995 (date of
inception) through December 31, 1995, together with the Report of
Independent Public Accountants included as Exhibit 99.6 to Amendment No. 5
to AIMCO's Current Report on Form 8-K, dated June 3, 1997;
(ix) the Combined Balance Sheets of NHP New L.P. Entities as of
December 31, 1996 and 1995 and the related combined statements of
operations, changes partners' capital, net and cash flows for the year
ended December 31, 1996 and for the period from January 20, 1995 (date of
inception) through December 31, 1995, together with the Report of
Independent Public Accountants included as Exhibit 99.7 to Amendment No. 1
to AIMCO's Current Report on Form 8-K, dated June 3, 1997;
(x) the Combined Balance Sheets of NHP Borrower Entities as of
December 31, 1996 and 1995 and the related combined statements of
operations, changes partners' capital, net and cash flows for the year
ended December 31, 1996 and for the period from January 20, 1995 (date of
inception) through December 31, 1995, together with the Report of
Independent Public Accountants included as Exhibit 99.8 to Amendment No. 1
to AIMCO's Current Report on Form 8-K, dated June 3, 1997,
(xi) the Historical Summary of Gross Income and Certain Expenses of
The Bay Club at Aventura for the year ended December 31, 1996 and the three
months ended March 31, 1997 (unaudited), together with the Report of
Independent Auditors included as Exhibit 99.9 to Amendment No. 1 to AIMCO's
Current Report on Form 8-K, dated June 3, 1997;
(xii) the Historical Summary of Gross Income and Direct Operating
Expenses of Morton Towers for the year ended December 31, 1996 and the six
months ended June 30, 1997 (unaudited), together with the Report of
Independent Auditors included as Exhibit 99.1 to AIMCO's Current Report on
Form 8-K, dated September 19, 1997;
(xiii) the Combined Statement of Revenues and Certain Expenses of the
Thirty-Five Acquisition Properties for the year ended December 31, 1996 and
the six months ended June 30, 1997 (unaudited), together with the Report of
Independent Auditors included as Exhibit 99.1 to AIMCO's Current Report on
Form 8-K, dated October 15, 1997;
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(xiv) the Statements of Revenues and Certain Expenses of First
Alexandria Associates, A Limited Partnership, for the years ended December
31, 1996, 1995 and 1994 and for the nine months ended September 30, 1997
(unaudited), together with the Report of Independent Public Accountants
included as Exhibit 99.3 to AIMCO's Current Report on Form 8-K, dated
December 1, 1997;
(xv) the Statements of Revenues and Certain Expenses of Country Lakes
Associates Two, A Limited Partnership, for the years ended December 31,
1996, 1995 and 1994 and for the nine months ended September 30, 1997
(unaudited), together with the Report of Independent Public Accountants
included as Exhibit 99.4 to AIMCO's Current Report on Form 8-K, dated
December 1, 1997;
(xvi) the Statements of Revenues and Certain Expenses of Point West
Limited Partnership, A Limited Partnership, for the years ended December
31, 1996, 1995 and 1994 and for the nine months ended September 30, 1997
(unaudited), together with the Report of Independent Public Accountants
included as Exhibit 99.5 to AIMCO's Current Report on Form 8-K, dated
December 1, 1997;
(xvii) the Statements of Revenues and Certain Expenses of The Oak Park
Partnership for the years ended December 31, 1996, 1995 and 1994 and for
the nine months ended September 30, 1997 (unaudited), together with the
Report of Independent Public Accountants included as Exhibit 99.6 to
AIMCO's Current Report on Form 8-K, dated December 1, 1997;
(xviii) the Consolidated Balance Sheets of Ambassador Apartments,
Inc., as of December 31, 1997 and 1996, and the related consolidated
statements of operations, changes in shareholders' equity and cash flows
for each of the three years in the period ended December 31, 1997, 1996 and
1995, together with the Report of Independent Auditors included as Exhibit
99.1 to AIMCO's Current Report on Form 8-K, dated March 17, 1998;
(xix) the Consolidated Balance Sheets of Insignia Financial Group,
Inc. and Subsidiaries, as of December 31, 1997 and 1996, and the related
consolidated statements of income, changes in shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1997,
together with the Report of Ernst & Young LLP, Independent Auditors
included as Exhibit 99.2 to AIMCO's Current Report on Form 8-K, dated March
17, 1998; and
(xx) the Consolidated Balance Sheets of Insignia Financial Group, Inc.
and Subsidiaries, as of March 31, 1998 (unaudited) and December 31, 1997,
and the related consolidated statements of income and cash flows for the
three months ended March 31, 1998 (unaudited) and 1997 (unaudited),
included as Exhibit 99.3 to Amendment No. 2 to AIMCO's Current Report on
Form 8-K, dated March 17, 1998.
(xxi) the Consolidated Balance Sheets of Insignia Financial Group,
Inc. and Subsidiaries, as of June 30, 1998 (unaudited) and December 31,
1997, and the related consolidated statements of income and cash flows for
the six months ended June 30, 1998 (unaudited) and 1997 (unaudited),
included as Exhibit 99.3 to Amendment No. 5 to AIMCO's current report on
Form 8-K dated March 17, 1998.
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS IN ACCOUNTING AND
FINANCIAL DISCLOSURE.
There have been no changes in or disagreements with the Partnership's
accountants regarding accounting and financial disclosure during the
Partnership's two most recent fiscal years.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS.
(a) The following financial statements are filed as part of this
Registration Statement:
(i) The Consolidated Balance Sheets of AIMCO Properties, L.P. as of
December 31, 1997 and 1996 and the related consolidated statements of
income, partners' capital and cash flow for the years ended December 31,
1997, 1996 and 1995, together with the Report of Independent Auditors.
(ii) The consolidated financial statement schedule of real estate and
accumulated depreciation as of December 31, 1997 of AIMCO Properties, L.P.
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(iii) The Consolidated Balance Sheets of AIMCO Properties, L.P. as of
June 30, 1998 and December 31, 1997 and the related consolidated statements
of income and cash flow for the three and six months ended June 30, 1998
and 1997.
(iv) The Pro Forma Consolidated Balance Sheet of AIMCO Properties,
L.P. (Pre-Insignia Merger) as of June 30, 1998 and the Pro Forma
Consolidated Statements of Operations for the year ended December 31, 1997
and the six months ended June 30, 1998.
(v) The Pro Forma Consolidated Balance Sheet of AIMCO Properties, L.P.
(Insignia Merger) as of June 30, 1998 and the Pro Forma Consolidated
Statements of Operations for the year ended December 31, 1997 and the six
months ended June 30, 1998.
(vi) The Consolidated Balance Sheets of NHP Incorporated as of
December 31, 1996 and 1995 and the related consolidated statements of
operations, changes in shareholders' equity and cash flows for the years
ended December 31, 1996, 1995 and 1994, together with the Report of
Independent Public Accountants.
(vii) The Combined Balance Sheets of NHP Real Estate Companies, as of
December 31, 1996 and 1995 and March 31, 1997 (unaudited), and the related
combined statements of operations, changes in shareholders' equity
(deficit) and partners' capital (deficit), net and cash flows for each of
the three years in the period ended December 31, 1996, and for the three
months ended March 31, 1997 (unaudited) and 1996 (unaudited), together with
the Report of Independent Public Accountants.
(viii) The Balance Sheets of NHP Southwest Partners, L.P. as of
December 31, 1996 and 1995 and the related combined statements of
operations, changes in partners' capital, net and cash flows for the year
ended December 31, 1996 and for the period from January 20, 1995 (date of
inception) through December 31, 1995, together with the Report of
Independent Public Accountants.
(ix) The Combined Balance Sheets of NHP New L.P. Entities as of
December 31, 1996 and 1995 and the related combined statements of
operations, changes in partners' capital, net and cash flows for the year
ended December 31, 1996 and for the period from January 20, 1995 (date of
inception) through December 31, 1995, together with the Report of
Independent Public Accountants.
(x) The Combined Balance Sheets of NHP Borrower Entities as of
December 31, 1996 and 1995 and the related combined statements of
operations, changes in partners' capital, net and cash flows for the year
ended December 31, 1996 and for the period from January 20, 1995 (date of
inception) through December 31, 1995, together with the Report of
Independent Public Accountants.
(xi) The Historical Summary of Gross Income and Certain Expenses of
The Bay Club at Aventura for the year ended December 31, 1996 and the three
months ended March 31, 1997 (unaudited), together with the Report of
Independent Auditors.
(xii) The Historical Summary of Gross Income and Direct Operating
Expenses of Morton Towers for the year ended December 31, 1996 and the six
months ended June 30, 1997 (unaudited), together with the Report of
Independent Auditors.
(xiii) The Combined Statement of Revenues and Certain Expenses of the
Thirty-Five Acquisition Properties for the year ended December 31, 1996 and
the six months ended June 30, 1997 (unaudited), together with the Report of
Independent Auditors.
(xiv) The Statements of Revenues and Certain Expenses of First
Alexandria Associates, A Limited Partnership, for the years ended December
31, 1996, 1995 and 1994 and for the nine months ended September 30, 1997
(unaudited), together with the Report of Independent Public Accountants.
(xv) The Statements of Revenues and Certain Expenses of Country Lakes
Associates Two, A Limited Partnership, for the years ended December 31,
1996, 1995 and 1994 and for the nine months ended September 30, 1997
(unaudited), together with the Report of Independent Public Accountants.
(xvi) The Statements of Revenues and Certain Expenses of Point West
Limited Partnership, A Limited Partnership, for the years ended December
31, 1996, 1995 and 1994 and for the nine months ended September 30, 1997
(unaudited), together with the Report of Independent Public Accountants.
84
<PAGE> 86
(xvii) The Statements of Revenues and Certain Expenses of The Oak Park
Partnership for the years ended December 31, 1996, 1995 and 1994 and for
the nine months ended September 30, 1997 (unaudited), together with the
Report of Independent Public Accountants.
(xviii) The Consolidated Balance Sheets of Ambassador Apartments,
Inc., as of December 31, 1997 and 1996, and the related consolidated
statements of operations, changes in shareholders' equity and cash flows
for each of the three years in the period ended December 31, 1997, 1996 and
1995, together with the Report of Independent Auditors.
(xix) The Consolidated Balance Sheets of Insignia Financial Group,
Inc. and Subsidiaries, as of December 31, 1997 and 1996, and the related
consolidated statements of income, changes in shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1997,
together with the Report of Ernst & Young LLP, Independent Auditors.
(xx) The Consolidated Balance Sheets of Insignia Financial Group, Inc.
and Subsidiaries, as of March 31, 1998 (unaudited) and December 31, 1997,
and the related consolidated statements of income and cash flows the three
months ended of March 31, 1998 (unaudited).
(xxi) the Consolidated Balance Sheets of Insignia Financial Group,
Inc. and Subsidiaries, as of June 30, 1998 (unaudited) and December 31,
1997, and the related consolidated statements of income and cash flows for
the six months ended June 30, 1998 (unaudited) and 1997 (unaudited),
included as Exhibit 99.3 to Amendment No. 5 to AIMCO's current report on
Form 8-K dated March 17, 1998.
(b) The following exhibits are filed as part of this Registration
Statement:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
2.1 -- Amended and Restated Agreement and Plan of Merger, dated
as of May 26, 1998, by and among Apartment Investment and
Management Company, AIMCO Properties, L.P., Insignia
Financial Group, Inc., and Insignia/ESG Holdings, Inc.
(filed June 22, 1998, as Exhibit 2.1 to Amendment No. 2
to AIMCO's Current Report on Form 8-K, dated March 17,
1998 and incorporated herein by reference)
2.2 -- Agreement and Plan of Merger, dated as of April 21, 1997,
by and among Apartment Investment and Management Company,
AIMCO/NHP Acquisition Corp. and NHP Incorporated (filed
as Exhibit 2.1 to AIMCO's Current Report on Form 8-K,
dated April 16, 1997 and incorporated herein by
reference)
2.3 -- Stock Purchase Agreement, dated as of April 16, 1997, by
and among Apartment Investment and Management Company,
Demeter Holdings Corporation and Capricorn Investors,
L.P. (filed as Exhibit 2.2 to AIMCO's Current Report on
Form 8-K, dated April 16, 1997 and incorporated herein by
reference)
2.4 -- Agreement and Plan of Merger, dated as of December 23,
1997, by and between Apartment Investment and Management
Company and Ambassador Apartments, Inc. (filed as Exhibit
2.1 to AIMCO's Current Report on Form 8-K, dated December
23, 1997 and incorporated herein by reference)
10.1 -- Second Amended and Restated Agreement of Limited
Partnership of AIMCO Properties, L.P., dated as of July
29, 1994, among AIMCO-GP, Inc., as general partner,
AIMCO-LP, Inc., as special limited partner, and AIMCO-GP,
Inc., as attorney-in-fact for the limited partners (filed
as Exhibit 10.17 to AIMCO's Quarterly Report on Form 10-Q
for the quarterly period ending June 30, 1997 and
incorporated herein by reference)
10.2 -- First Amendment to the Second Amended and Restated
Agreement of Limited Partnership of AIMCO Properties,
L.P., dated as of July 29, 1997, by AIMCO-GP, Inc. (filed
as Exhibit 10.18 to AIMCO's Quarterly Report on Form 10-Q
for the quarterly period ending June 30, 1997 and
incorporated herein by reference)
</TABLE>
85
<PAGE> 87
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.3 -- Second Amendment to the Second Amended and Restated
Agreement of Limited Partnership of AIMCO Properties,
L.P., dated as of December 22, 1997 by AIMCO-GP, Inc.
(filed as Exhibit 10.35 to AIMCO's Annual Report on Form
10-K for the fiscal year 1997 and incorporated herein by
reference)
10.4 -- Third Amendment to the Second Amended and Restated
Agreement of Limited Partnership of AIMCO Properties,
L.P., dated as of February 19, 1998 by AIMCO-GP, Inc.
(filed as Exhibit 10.36 to AIMCO's Annual Report on Form
10-K for the fiscal year 1997 and incorporated herein by
reference)
10.5 -- Fourth Amendment to the Second Amended and Restated
Agreement of Limited Partnership of AIMCO Properties,
L.P., dated as of March 25, 1998, by AIMCO-GP, Inc.
(filed as Exhibit 10.9 to AIMCO's Quarterly Report on
Form 10-Q for the quarterly period ending March 31, 1998
and incorporated herein by reference)
10.6 -- Fifth Amendment, dated as of July 15, 1998, to the Second
Amended and Restated Agreement of Limited Partnership of
AIMCO Properties, L.P., dated as of July 29, 1994 (Filed
as Exhibit 10.6 to AIMCO's Quarterly Report on Form 10-Q
for the quarterly period ending June 30, 1998 and
incorporated herein by reference)
10.7 -- Sixth Amendment dated as of August 14, 1998 to the Second
Amended and Restated Agreement of Limited Partnership of
AIMCO Properties, L.P., dated as of July 29, 1994 (Filed
as Exhibit 10.7 to AIMCO's Quarterly Report on Form 10-Q
for the quarterly period ending June 30, 1998 and
incorporated herein by reference)
10.8 -- Apartment Investment and Management Company Non-Qualified
Employee Stock Option Plan, adopted August 29, 1996
(filed as Exhibit 10.8 to AIMCO's Quarterly Report on
Form 10-Q/A for the quarterly period ending September 30,
1996 and incorporated herein by reference)
10.9 -- Apartment Investment and Management Company 1996 Stock
Award and Incentive Plan, adopted April 25, 1996 (filed
as Exhibit 10.70 to AIMCO's Annual Report on Form 10-K
for the fiscal year 1996 and incorporated herein by
reference)
10.10 -- Summary of Arrangement for Sale of Stock to Executive
Officers (filed as Exhibit 10.104 to AIMCO's Annual
Report on Form 10-K for the fiscal year 1996 and
incorporated herein by reference)
10.11 -- Employment Contract executed on July 29, 1994 by and
between AIMCO Properties, L.P. and Peter Kompaniez (filed
as Exhibit 10.44a to AIMCO's Annual Report on Form 10-K
for the fiscal year 1994 and incorporated herein by
reference)
10.12 -- Employment Contract executed on July 29, 1994 by and
between AIMCO Properties, L.P. and Terry Considine (filed
as Exhibit 10.44c to AIMCO's Annual Report on Form 10-K
for the fiscal year 1994 and incorporated herein by
reference)
10.13 -- Employment Contract executed on July 29, 1994 by and
between AIMCO Properties, L.P. and Steven D. Ira (filed
as Exhibit 10.44d to AIMCO's Annual Report on Form 10-K
for the fiscal year 1994 and incorporated herein by
reference)
10.14 -- Contribution Agreement, dated as of January 31, 1998, by
and between Apartment Investment and Management Company
and Terry Considine and Peter K. Kompaniez (filed as
Exhibit 2.1 to AIMCO's Current Report on Form 8-K dated
January 31, 1998 and incorporated herein by reference)
10.15 -- Amendment No. 1 to the Apartment Investment and
Management Company 1997 Stock Award and Incentive Plan
(filed as Exhibit 10.12 to AIMCO's Quarterly Report on
Form 10-Q for the quarterly period ending March 31, 1998
and incorporated herein by reference)
</TABLE>
86
<PAGE> 88
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.16 -- Apartment Investment Management Company 1998 Incentive
Compensation Plan (filed as Exhibit 10.13 to AIMCO's
Quarterly Report on Form 10-Q for the quarterly period
ending March 31, 1998 and incorporated herein by
reference)
10.17 -- 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") (filed as Exhibit
99.3 to AIMCO's Current Report on Form 8-K, dated October
15, 1997 and incorporated herein by reference)
10.18 -- Letter Agreement, dated October 15, 1997, by and between
AIMCO Properties, L.P. and the Winthrop Sellers (filed as
Exhibit 99.6 to AIMCO's Current Report on Form 8-K, dated
October 15, 1997 and incorporated herein by reference)
10.19 -- Contribution Agreement and Joint Escrow Instructions,
dated as of January 1, 1996, by and between AIMCO
Properties, L.P. and Peachtree Park 94, L.P.(6) (filed as
Exhibit 10.1 to AIMCO's Current Report on Form 8-K, dated
January 1, 1996 and incorporated herein by reference)
10.20 -- Acquisition Agreement, dated as of April 30, 1996, by and
among the Company, AIMCO Somerset, Inc., AIMCO
Properties, L.P., Somerset REIT, Inc., RJ Holdings, Ltd.,
Somerset PAM Partnership and RJ Equities, Inc. (filed as
Exhibit 10.1 to AIMCO's Quarterly Report on Form 10-Q for
the quarterly period ending June 30, 1996 and
incorporated herein by reference)
10.21 -- 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 (filed
as Exhibit 2.1 to AIMCO's Current Report on Form 8-K
dated June 3, 1997 and incorporated herein by reference)
10.22 -- Credit Agreement (Unsecured Revolver-to-Term Facility),
dated January 26, 1998, by and among Bank of America
National Trust and Savings Association ("Bank of
America") and BankBoston, N.A. (filed as Exhibit 10.1 to
AIMCO's Quarterly Report on Form 10-Q for the quarterly
period ending March 31, 1998 and incorporated herein by
reference)
10.23 -- Payment Guaranty dated as of January 26, 1998, by
Apartment Investment and Management Company, AIMCO-GP,
Inc., AIMCO-LP, Inc., AIMCO Holdings, L.P., AIMCO
Holdings QRS, Inc., AIMCO Somerset, Inc., AIMCO
Properties Finance Corp., and AIMCO/OTC QRS, Inc. in
favor of Bank of America (filed as Exhibit 10.2 to
AIMCO's Quarterly Report on Form 10-Q for the quarterly
period ending March 31, 1998 and incorporated herein by
reference)
10.24 -- Payment Guaranty, dated as of January 26, 1998, by
Property Asset Management Services, L.P., NHP Management
Company, Property Asset Management
Services -- California, L.L.C. in favor of Bank of
America (filed as Exhibit 10.3 to AIMCO's Quarterly
Report on Form 10-Q for the quarterly period ending March
31, 1998 and incorporated herein by reference)
10.25 -- First Amendment to Credit Agreement, dated as of May 8,
1998, by and among AIMCO Properties, L.P., the financial
institutions listed on the signature pages thereof and
Bank of America (filed as Exhibit 10.4 to AIMCO's
Quarterly Report on Form 10-Q for the quarterly period
ending March 31, 1998 and incorporated herein by
reference)
</TABLE>
87
<PAGE> 89
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.26 -- Payment Guaranty, dated as of May 8, 1998, by Ambassador
II, L.P. in favor of Bank of America (filed as Exhibit
10.5 to AIMCO's Quarterly Report on Form 10-Q for the
quarterly period ending March 31, 1998 and incorporated
herein by reference)
10.27 -- Master Credit Facility Agreement, dated as of February 4,
1998, by and among Apartment Investment and Management
Company, AIMCO Properties, L.P., AIMCO/Bluffs, L.L.C.,
AIMCO Chesapeake, L.P., AIMCO Elm Creek, L.P., AIMCO
Lakehaven, L.P., AIMCO Los Arboles, L.P., and Washington
Mortgage Financial Group, Ltd. (filed as Exhibit 10.6 to
AIMCO's Quarterly Report on Form 10-Q for the quarterly
period ending March 31, 1998 and incorporated herein by
reference)
10.28 -- Guaranty, dated as of February 4, 1998, by Apartment
Investment and Management Company, for the benefit of
Washington Mortgage Financial Group, Ltd. (filed as
Exhibit 10.7 to AIMCO's Quarterly Report on Form 10-Q for
the quarterly period ending March 31, 1998 and
incorporated herein by reference)
10.29 -- Second Amendment to Credit Agreement, dated as of May 21,
1998, by and among AIMCO Properties, L.P., the financial
institutions listed on the signature pages thereof and
Bank of America (Filed as Exhibit 10.3 to AIMCO's
Quarterly Report on Form 10-Q for the quarterly period
ending June 30, 1998 and incorporated herein by
reference)
10.30 -- Payment Guaranty, dated as of May 21, 1998 by Ambassador
X, L.P. in favor of Bank of America (Filed as Exhibit
10.4 to AIMCO's Quarterly Report on Form 10-Q for the
quarterly period ending June 30, 1998 and incorporated
herein by reference)
10.31 -- Payment Guaranty, dated as of May 21, 1998, by Ambassador
I, Inc., Ambassador II, Inc., Ambassador IV, Inc.,
Ambassador V, Inc., Ambassador VI, Inc., Ambassador VII,
Inc., Ambassador VIII, Inc., Ambassador IX, Inc.,
Ambassador X, Inc., Ambassador XI, Inc., Ambassador XII,
Inc., Ambassador Florida Partners, Inc., A.J. One, Inc.,
and A.J., Two, Inc. in favor of Bank of America (Filed as
Exhibit 10.5 to AIMCO's Quarterly Report on Form 10-Q for
the quarterly period ending June 30, 1998 and
incorporated herein by reference)
10.32 -- Payment Guaranty, dated as of May 8, 1998, by AIMCO
Properties, L.P. for the benefit of Federal National
Mortgage Association (filed as Exhibit 10.8 to AIMCO's
Quarterly Report on Form 10-Q for the quarterly period
ending June 30, 1998 and incorporated herein by
reference)
10.33 -- Contribution and Management Agreement, dated as of June
15, 1998, by and between Apartment Investment and
Management Company and AIMCO Properties, L.P.
21.1 -- Subsidiaries of AIMCO Properties, L.P.
27.1 -- Financial Data Schedule -- as of and for the year ended
December 31, 1997
27.2 -- Financial Data Schedule -- as of and for the three months
ended March 31, 1998
27.3 -- Financial Data Schedule -- as of and for the six months
ended June 30, 1998
99.1 -- Agreement re: disclosure of long-term debt instruments
</TABLE>
- ---------------
(1) Schedules and supplemental materials to the exhibits have been omitted but
will be provided to the Securities and Exchange Commission upon request.
88
<PAGE> 90
AIMCO PROPERTIES, L.P.
INDEX TO FINANCIAL STATEMENTS
<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
AUDITED FINANCIAL STATEMENT SCHEDULE:
Schedule III -- Real Estate and Accumulated
Depreciation........................................... F-34
All other schedules are omitted because they are not
applicable or the required information is shown in the
financial statements or notes thereto
INTERIM UNAUDITED FINANCIAL STATEMENTS:
Consolidated Balance Sheets as of June 30, 1998 and
December 31, 1997...................................... F-39
Consolidated Statements of Income for the Three and Six
Months ended June 30, 1998, and 1997................... F-40
Consolidated Statements of Cash Flow for the Six Months
ended June 30, 1998, and 1997.......................... F-41
Notes to Consolidated Financial Statements................ F-45
PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P.
PRO FORMA FINANCIAL INFORMATION (PRE-INSIGNIA MERGER)
Pro Forma Consolidated Balance Sheet as of June 30,
1998.................................................. F-59
Pro Forma Consolidated Statement of Operations for the
year ended December 31, 1997.......................... F-67
Pro Forma Consolidated Statement of Operations for the
six months ended June 30, 1998........................ F-69
PRO FORMA FINANCIAL INFORMATION (INSIGNIA MERGER)
Pro Forma Consolidated Balance Sheet as of June 30,
1998.................................................. F-81
Pro Forma Consolidated Statement of Operations for the
year ended December 31, 1997.......................... F-82
Pro Forma Consolidated Statement of Operations for the
six months ended
June 30, 1998........................................ F-87
</TABLE>
F-1
<PAGE> 91
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> 92
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
Partners' capital (see Note 15)
General and Special Limited Partner....................... 910,721 215,749
Preferred Units........................................... 134,579 --
Limited Partners.......................................... 111,962 58,777
---------- --------
Total partners' capital........................... 1,157,262 274,526
---------- --------
Total liabilities and partners' capital........... $2,100,510 $827,673
========== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 93
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> 94
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 LIMITED
PARTNER UNITS PARTNERS TOTAL
--------------- --------- -------- ----------
<S> <C> <C> <C> <C>
PARTNERS' CAPITAL AT JANUARY 1, 1995.................. $140,319 $ 107,228 $ 29,082 $ 276,629
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)
Acquisition of real estate through issuance of OP
Units............................................... -- -- 2,626 2,626
Net income............................................ 8,206 5,169 1,613 14,988
Distributions paid to Preferred Unit holders.......... -- (5,169) -- (5,169)
Distributions paid to OP Unit holders................. (15,757) -- (2,925) (18,682)
-------- --------- -------- ----------
PARTNERS' CAPITAL AT DECEMBER 31, 1995................ 169,032 -- 30,378 199,410
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 -- 32,156 47,450
Repayment of secured note payable through issuance of
OP Units............................................ -- -- 1,168 1,168
Net income............................................ 12,984 -- 2,689 15,673
Distributions paid to OP Unit holders................. (20,736) -- (3,815) (24,551)
-------- --------- -------- ----------
PARTNERS' CAPITAL AT DECEMBER 31, 1996................ 215,749 -- 58,777 274,526
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
Acquisition of real estate or interests in real estate
partnerships through issuance of OP Units........... -- -- 63,375 63,375
OP Units issued in accordance with partnership
amendment........................................... -- -- (123) (123)
Net Income............................................ 26,318 2,315 4,064 32,697
Distributions paid to OP Unit holders................. (44,660) -- (5,510) (50,170)
Distributions paid to Class B Preferred Unit
holders............................................. -- (846) -- (846)
Unrealized loss on investments........................ (1,683) -- -- (1,683)
-------- --------- -------- ----------
PARTNERS' CAPITAL AT DECEMBER 31, 1997................ $910,721 $ 134,579 $111,962 $1,157,262
======== ========= ======== ==========
</TABLE>
See accompanying notes to consolidated financial statements
F-5
<PAGE> 95
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 OP Unitholders................ (50,170) (24,551) (18,682)
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> 96
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> 97
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> 98
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> 99
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> 100
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.
F-11
<PAGE> 101
AIMCO PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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>
F-12
<PAGE> 102
AIMCO PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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
F-13
<PAGE> 103
AIMCO PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$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 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
F-14
<PAGE> 104
AIMCO PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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, 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
F-15
<PAGE> 105
AIMCO PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 21).
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 $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.
F-16
<PAGE> 106
AIMCO PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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.
F-17
<PAGE> 107
AIMCO PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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).
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
F-18
<PAGE> 108
AIMCO PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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.
F-19
<PAGE> 109
AIMCO PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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>
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.
F-20
<PAGE> 110
AIMCO PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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
F-21
<PAGE> 111
AIMCO PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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
F-22
<PAGE> 112
AIMCO PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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.
F-23
<PAGE> 113
AIMCO PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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 21). 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
F-24
<PAGE> 114
AIMCO PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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).
F-25
<PAGE> 115
AIMCO PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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
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
F-26
<PAGE> 116
AIMCO PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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
F-27
<PAGE> 117
AIMCO PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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>
F-28
<PAGE> 118
AIMCO PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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.
F-29
<PAGE> 119
AIMCO PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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).
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.
F-30
<PAGE> 120
AIMCO PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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
F-31
<PAGE> 121
AIMCO PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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
F-32
<PAGE> 122
AIMCO PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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-33
<PAGE> 123
SCHEDULE III
AIMCO PROPERTIES, L.P.
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997
(IN THOUSANDS EXCEPT UNIT DATA)
<TABLE>
<CAPTION>
INITIAL COST COST
------------------------ CAPITALIZED
DATE YEAR NUMBER BUILDINGS AND SUBSEQUENT TO
PROPERTY NAME ACQUIRED LOCATION BUILT OF UNITS LAND IMPROVEMENTS ACQUISITION
- ------------- -------- -------- --------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
100 Forest Place......... 10/97 Oak Park, IL 1986 234 $ 3,463 $ 19,624 35
40th North............... 07/94 Phoenix, AZ 1970 556 2,546 14,437 1,198
Anchorage................ 11/96 League City, TX 1985 264 523 9,097 123
Arbor Crossing........... 05/97 Atlanta, GA 1988 240 1,879 10,647 36
Arbors................... 10/97 Tempe, AZ 1971 200 1,092 6,189 23
Ashford Plantation....... 12/95 Atlanta, GA 1975 211 2,770 9,956 464
Bay Club................. 04/97 Aventura, FL 1990 702 10,530 60,830 1,060
Bay West................. 12/96 Tampa, FL 1975 376 1,500 7,085 1,063
Beacon Hill.............. 10/97 Chamblee, GA 1978 120 928 5,261 20
Blossomtree.............. 10/97 Scottsdale, AZ 1970 125 535 3,029 16
Bluffs................... 09/83 Boulder, CO 1971 232 696 7,779 364
Boardwalk................ 12/95 Tamarac, FL 1986 291 3,350 8,196 886
Brandywine............... 04/83 St. Petersburg, FL 1971 477 1,423 11,336 1,436
Brant Rock............... 10/97 Houston, TX 1984 84 337 1,908 11
Brentwood................ 11/96 Lake Jackson, TX 1980 104 200 3,092 210
Bridgewater.............. 11/96 Tomball, TX 1978 206 333 4,033 155
Brookside Village........ 04/96 Tustin, CA 1970 336 2,498 14,180 1,051
Cambridge Heights........ 05/97 Natchez, MS 1979 94 249 1,413 14
Chesapeake............... 12/96 Houston, TX 1983 320 775 7,317 668
Colonnade Gardens........ 10/97 Phoenix, AZ 1973 196 765 4,337 16
Copperfield.............. 11/96 Houston, TX 1983 196 702 7,003 275
Copper Chase............. 12/96 Katy, TX 1982 316 1,484 11,530 514
Coral Gardens............ 04/93 Las Vegas, NV 1983 670 3,190 12,745 1,594
Country Club............. 07/94 Amarillo, TX 1984 282 1,049 5,951 535
Coventry Square.......... 11/96 Houston, TX 1983 270 975 6,355 127
Crows Nest............... 11/96 League City, TX 1984 176 795 5,400 22
Cypress Landing.......... 12/96 Savannah, GA 1984 200 386 7,911 880
Dolphin's Landing........ 12/96 Corpus Cristi, TX 1980 218 1,740 5,589 2,943
Dunwoody................. 07/94 Atlanta, GA 1980 318 1,838 10,538 678
Easton Village........... 11/96 Houston, TX 1983 146 440 6,584 377
Eden Crossing............ 11/94 Pensacola, FL 1985 200 1,111 6,332 400
Elm Creek................ 05/97 Chicago, IL 1986 372 5,339 30,253 56
Fairways................. 07/94 Phoenix, AZ 1986 260 1,830 10,403 6,592
Fairways II.............. 09/96 Phoenix, AZ 1996 92 -- -- 5,952
Fisherman's Landing...... 12/97 Bradenton, FL 1984 200 1,275 7,225 --
Fishermans Wharf......... 11/96 Clute, TX 1981 360 830 9,969 131
<CAPTION>
DECEMBER 31, 1997
----------------------------------------------------------------------------------
TOTAL COST TOTAL COST
------------------------------------- NET OF
BUILDINGS AND ACCUMULATED ACCUMULATED
PROPERTY NAME LAND IMPROVEMENTS TOTAL DEPRECIATION DEPRECIATION ENCUMBRANCES
- ------------- -------- ------------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
100 Forest Place......... $ 3,463 $ 19,659 $ 23,122 $ 232 $ 22,890 $ 15,600
40th North............... 2,546 15,635 18,181 2,250 15,931 10,818
Anchorage................ 523 9,220 9,743 2,951 6,792 4,923
Arbor Crossing........... 1,879 10,683 12,562 287 12,275 5,410
Arbors................... 1,092 6,212 7,304 40 7,264 3,909
Ashford Plantation....... 2,770 10,420 13,190 865 12,325 7,463
Bay Club................. 10,530 61,890 72,420 1,493 70,927 49,000
Bay West................. 1,500 8,148 9,648 241 9,407 (A)
Beacon Hill.............. 928 5,281 6,209 34 6,175 3,678
Blossomtree.............. 535 3,045 3,580 19 3,561 2,143
Bluffs................... 696 8,143 8,839 4,919 3,920 6,192
Boardwalk................ 3,350 9,082 12,432 779 11,653 9,529
Brandywine............... 1,423 12,772 14,195 4,547 9,648 6,584
Brant Rock............... 337 1,919 2,256 12 2,244 1,239
Brentwood................ 200 3,302 3,502 87 3,415 1,827
Bridgewater.............. 333 4,188 4,521 1,112 3,409 --
Brookside Village........ 2,498 15,231 17,729 250 17,479 --
Cambridge Heights........ 249 1,427 1,676 35 1,641 1,589
Chesapeake............... 775 7,985 8,760 285 8,475 (A)
Colonnade Gardens........ 765 4,353 5,118 28 5,090 2,893
Copperfield.............. 702 7,278 7,980 1,090 6,890 3,533
Copper Chase............. 1,484 12,044 13,528 6,124 7,404 5,666
Coral Gardens............ 3,190 14,339 17,529 3,092 14,437 11,306
Country Club............. 1,049 6,486 7,535 883 6,652 4,064
Coventry Square.......... 975 6,482 7,457 2,466 4,991 3,077
Crows Nest............... 795 5,422 6,217 1,527 4,690 2,922
Cypress Landing.......... 386 8,791 9,177 2,472 6,705 4,377
Dolphin's Landing........ 1,740 8,532 10,272 255 10,017 (A)
Dunwoody................. 1,838 11,216 13,054 1,545 11,509 7,545
Easton Village........... 690 6,711 7,401 1,266 6,135 2,931
Eden Crossing............ 1,111 6,732 7,843 858 6,985 5,959
Elm Creek................ 5,339 30,309 35,648 836 34,812 (C)
Fairways................. 1,830 16,995 18,825 1,565 17,260 6,405
Fairways II.............. -- 5,952 5,952 -- 5,952 --
Fisherman's Landing...... 1,275 7,225 8,500 -- 8,500 --
Fishermans Wharf......... 830 10,100 10,930 3,482 7,448 3,575
</TABLE>
See Report of Independent Auditors and accompanying notes to the consolidated
financial statements.
F-34
<PAGE> 124
<TABLE>
<CAPTION>
INITIAL COST COST
------------------------ CAPITALIZED
DATE YEAR NUMBER BUILDINGS AND SUBSEQUENT TO
PROPERTY NAME ACQUIRED LOCATION BUILT OF UNITS LAND IMPROVEMENTS ACQUISITION
- ------------- -------- -------- --------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Fondren Court............ 11/96 Houston, TX 1979 429 1,349 9,355 423
Foothills................ 10/97 Tucson, AZ 1982 270 1,203 6,817 19
Foxbay................... 10/97 Tucson, AZ 1983 232 700 3,966 22
Foxchase................. 05/97 Alexandria, VA 1947 2,113 39,390 68,354 890
Foxtree.................. 10/97 Tempe, AZ 1976 487 2,505 14,194 30
Frankford Place.......... 07/94 Dallas, TX 1982 274 1,125 6,382 673
Freedom Place Club....... 10/97 Jacksonville, FL 1988 352 2,289 12,970 24
Garden Terrace........... 07/94 Bowie, TX 1978 20 49 280 23
Greens of Naperville..... 05/97 Naperville, IL 1986 400 3,756 21,284 60
Green Tree............... 12/96 Carrollton, TX 1983 365 1,909 14,842 398
Hampton Hill............. 11/96 Houston, TX 1984 332 1,574 8,408 773
Hastings Place........... 11/96 Houston, TX 1984 176 734 3,382 312
Hazeltree................ 10/97 Phoenix, AZ 1970 310 997 5,650 18
Heather Ridge............ 12/96 Arlington, TX 1983 180 655 5,455 (4)
Hiddentree............... 10/97 East Lansing, MI 1966 261 1,470 8,330 16
Highland Park............ 12/96 Ft. Worth, TX 1985 500 3,234 19,536 261
Hillmeade................ 11/94 Nashville, TN 1985 288 2,872 16,066 1,214
Hills.................... 10/97 Austin, TX 1983 329 1,367 7,747 22
Islandtree............... 10/97 Whitemarsh Island, GA 1985 216 1,267 7,181 18
Jefferson Place.......... 11/94 Baton Rouge, LA 1985 234 2,696 15,115 1,215
Lake Crossing............ 05/97 Atlanta, GA 1988 300 2,046 11,596 45
Lakehaven I.............. 05/97 Carol Stream, IL 1984 144 1,071 6,069 21
Lakehaven II............. 05/97 Carol Stream, IL 1985 348 2,680 15,189 53
Las Brisas............... 07/94 Casa Grande, AZ 1985 132 573 3,260 131
Las Brisas............... 12/95 San Antonio, TX 1983 176 1,100 5,454 311
Lexington................ 07/94 San Antonio, TX 1981 72 311 1,764 75
Los Arboles.............. 09/97 Chandler, AZ 1985 432 1,662 9,418 67
Meadowcreek.............. 04/85 Boulder, CO 1972 332 1,387 10,027 692
Meadows.................. 12/96 Austin, TX 1983 100 417 4,563 151
Montecito................ 07/94 Austin, TX 1985 268 1,268 7,194 1,180
Morton Towers............ 09/97 Miami Beach, FL 1960 1,277 8,736 49,774 285
Newberry Park............ 05/97 Chicago, IL 1985 84 181 1,027 13
Newport.................. 07/94 Phoenix, AZ 1986 204 800 4,554 394
Oak Falls................ 11/96 Spring, TX 1983 144 514 3,585 201
Olmos Club............... 10/97 San Antonio, TX 1983 134 322 1,825 13
Olympiad................. 11/94 Montgomery, AL 1986 176 1,046 5,958 415
Orchidtree............... 10/97 Scottsdale, AZ 1971 278 2,314 13,112 20
Paradise Palms........... 07/94 Phoenix, AZ 1970 130 647 3,684 300
Park at Cedar Lawn....... 11/96 Galveston, TX 1985 192 769 5,073 (15)
Parliament Bend.......... 07/94 San Antonio, TX 1980 232 765 4,342 405
Peachtree Park........... 1/96 Atlanta, GA 1962/1995 295 4,681 12,957 1,355
Penn Square.............. 12/94 Albuquerque, NM 1982 210 1,128 6,478 488
Peppermill Place......... 11/96 Houston, TX 1983 224 406 3,957 208
Pine Creek............... 10/97 Clio, MI 1978 233 852 4,830 14
Pleasant Ridge........... 11/94 Little Rock, AR 1982 200 1,660 9,464 580
<CAPTION>
DECEMBER 31, 1997
----------------------------------------------------------------------------------
TOTAL COST TOTAL COST
------------------------------------- NET OF
BUILDINGS AND ACCUMULATED ACCUMULATED
PROPERTY NAME LAND IMPROVEMENTS TOTAL DEPRECIATION DEPRECIATION ENCUMBRANCES
- ------------- -------- ------------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Fondren Court............ 1,349 9,778 11,127 5,044 6,083 5,528
Foothills................ 1,203 6,836 8,039 44 7,995 3,929
Foxbay................... 700 3,988 4,688 25 4,663 3,254
Foxchase................. 39,390 69,244 108,634 1,169 107,465 68,796
Foxtree.................. 2,505 14,224 16,729 91 16,638 9,062
Frankford Place.......... 1,125 7,055 8,180 967 7,213 4,003
Freedom Place Club....... 2,289 12,994 15,283 83 15,200 7,104
Garden Terrace........... 49 303 352 41 311 --
Greens of Naperville..... 3,756 21,344 25,100 249 24,851 16,182
Green Tree............... 1,909 15,240 17,149 4,524 12,625 7,534
Hampton Hill............. 2,130 8,625 10,755 3,840 6,915 4,188
Hastings Place........... 734 3,694 4,428 1,068 3,360 2,689
Hazeltree................ 997 5,668 6,665 36 6,629 4,133
Heather Ridge............ 655 5,451 6,106 1,994 4,112 2,630
Hiddentree............... 1,470 8,346 9,816 53 9,763 4,497
Highland Park............ 3,234 19,797 23,031 8,089 14,942 9,492
Hillmeade................ 2,872 17,280 20,152 2,151 18,001 11,091
Hills.................... 1,367 7,769 9,136 50 9,086 8,247
Islandtree............... 1,267 7,199 8,466 46 8,420 4,293
Jefferson Place.......... 2,696 16,330 19,026 2,023 17,003 9,543
Lake Crossing............ 2,046 11,641 13,687 312 13,375 11,628
Lakehaven I.............. 1,071 6,090 7,161 69 7,092 (C)
Lakehaven II............. 2,680 15,242 17,922 172 17,750 (C)
Las Brisas............... 573 3,391 3,964 468 3,496 (B)
Las Brisas............... 1,100 5,765 6,865 480 6,385 3,382
Lexington................ 311 1,839 2,150 260 1,890 1,067
Los Arboles.............. 1,662 9,485 11,147 95 11,052 --
Meadowcreek.............. 1,387 10,719 12,106 3,458 8,648 7,928
Meadows.................. 417 4,714 5,131 1,273 3,858 2,111
Montecito................ 1,268 8,374 9,642 1,064 8,578 5,030
Morton Towers............ 8,736 50,059 58,795 670 58,125 --
Newberry Park............ 181 1,040 1,221 26 1,195 8,621
Newport.................. 800 4,948 5,748 680 5,068 2,601
Oak Falls................ 514 3,786 4,300 1,097 3,203 2,767
Olmos Club............... 322 1,838 2,160 12 2,148 1,272
Olympiad................. 1,046 6,373 7,419 802 6,617 5,325
Orchidtree............... 2,314 13,132 15,446 84 15,362 7,404
Paradise Palms........... 647 3,984 4,631 550 4,081 2,335
Park at Cedar Lawn....... 769 5,058 5,827 1,227 4,600 2,781
Parliament Bend.......... 765 4,747 5,512 655 4,857 (B)
Peachtree Park........... 4,684 14,309 18,993 1,065 17,928 (A)
Penn Square.............. 1,128 6,966 8,094 854 7,240 4,224
Peppermill Place......... 406 4,165 4,571 1,063 3,508 3,615
Pine Creek............... 852 4,844 5,696 31 5,665 2,438
Pleasant Ridge........... 1,660 10,044 11,704 1,265 10,439 6,700
</TABLE>
See Report of Independent Auditors and accompanying notes to the consolidated
financial statements.
F-35
<PAGE> 125
<TABLE>
<CAPTION>
INITIAL COST COST
------------------------ CAPITALIZED
DATE YEAR NUMBER BUILDINGS AND SUBSEQUENT TO
PROPERTY NAME ACQUIRED LOCATION BUILT OF UNITS LAND IMPROVEMENTS ACQUISITION
- ------------- -------- -------- --------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Pleasant Valley.......... 11/94 Little Rock, AR 1985 112 907 5,069 708
Point West............... 05/97 Lenexa, KS 1985 172 979 5,548 26
Polo Park................ 10/97 Midland, TX 1983 184 800 4,532 17
Prairie Hills............ 07/94 Albuquerque, NM 1985 260 1,680 9,633 391
Pride Gardens............ 05/97 Jackson, MS 1975 76 265 1,502 12
Quailtree................ 10/97 Phoenix, AZ 1978 184 659 3,735 17
Randol Crossing.......... 12/96 Ft. Worth, TX 1984 160 782 5,742 18
Ridge Crest.............. 12/96 Denton, TX 1983 152 612 5,642 159
Rillito Village.......... 07/94 Tucson, AZ 1985 272 1,220 6,947 225
Rivercrest............... 10/97 Tucson, AZ 1984 210 751 4,253 10
Riverside................ 07/94 Denver, CO 1987 248 1,553 8,828 752
Riverwalk................ 12/95 Little Rock, AR 1988 262 1,075 9,295 333
Royal Palms.............. 07/94 Phoenix, AZ 1985 152 832 4,730 165
Sand Castles............. 10/97 League City, TX 1987 138 978 5,541 16
Sand Pebble.............. 10/97 El Paso, TX 1983 208 861 4,879 25
Sandpiper Cove........... 05/97 West Palm Beach, FL 1987 416 4,006 22,701 63
Sawgrass................. 07/97 Orlando, FL 1986 208 1,443 8,157 73
Seaside Point............ 11/96 Galveston, TX 1985 102 295 2,994 188
Seasons.................. 10/95 San Antonio, TX 1976 280 974 5,749 453
Shadetree................ 10/97 Tempe, AZ 1965 123 591 3,349 18
Shadow Lake.............. 10/97 Greensboro, NC 1988 136 1,054 5,972 19
Signature Point.......... 11/96 League City, TX 1994 304 2,160 13,627 53
Silktree................. 10/97 Phoenix, AZ 1979 86 421 2,383 16
Snug Harbor.............. 12/95 Las Vegas, NV 1990 64 750 2,966 253
Somerset Village......... 5/96 Salt Lake City, UT 1985 486 4,375 17,600 526
South Willow............. 07/94 Salt Lake City, UT 1987 440 2,218 12,612 783
Southridge............... 12/96 Greenville, TX 1984 160 565 5,787 70
Spectrum Pointe.......... 07/94 Atlanta, GA 1984 196 1,029 5,903 356
Stirling Court........... 11/96 Houston, TX 1984 228 946 5,958 283
Stonebrook............... 06/97 Orlando, FL 1991 244 1,583 9,046 147
Stonehaven............... 11/96 Houston, TX 1972 337 1,197 11,236 (2,550)
Stoney Brook............. 11/96 Houston, TX 1972 113 579 3,871 279
Summer Chase............. 05/97 Fort Smith, AR 1974 72 170 962 11
Sun Grove................ 07/94 Phoenix, AZ 1986 86 659 3,749 132
Sun Katcher.............. 12/95 Jacksonville, FL 1972 360 578 3,440 5,620
Sun Valley............... 07/94 Salt Lake City, UT 1985 430 1,306 7,434 328
Sunbury Downs............ 11/96 Houston, TX 1982 240 565 4,380 183
Sunchase-Clearwater...... 11/94 Clearwater, FL 1985 461 2,177 19,641 845
Sunchase-East............ 11/94 Orlando, FL 1985 296 927 8,361 679
Sunchase-North........... 11/94 Orlando, FL 1985 324 1,013 9,142 610
Sunchase-Tampa........... 11/94 Tampa, FL 1985 216 757 6,831 523
Surry Oaks............... 10/97 Bedford, TX 1983 152 628 3,560 18
Swiss Village............ 11/96 Houston, TX 1972 360 1,011 11,310 (941)
Tall Timbers............. 10/97 Houston, TX 1982 256 1,238 7,016 17
Tara Bridge.............. 05/97 Atlanta, GA 1988 220 1,610 9,124 33
<CAPTION>
DECEMBER 31, 1997
----------------------------------------------------------------------------------
TOTAL COST TOTAL COST
------------------------------------- NET OF
BUILDINGS AND ACCUMULATED ACCUMULATED
PROPERTY NAME LAND IMPROVEMENTS TOTAL DEPRECIATION DEPRECIATION ENCUMBRANCES
- ------------- -------- ------------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Pleasant Valley.......... 907 5,777 6,684 709 5,975 3,465
Point West............... 979 5,574 6,553 64 6,489 5,650
Polo Park................ 800 4,549 5,349 29 5,320 2,324
Prairie Hills............ 1,680 10,024 11,704 1,379 10,325 7,333
Pride Gardens............ 265 1,514 1,779 38 1,741 912
Quailtree................ 659 3,752 4,411 24 4,387 2,252
Randol Crossing.......... 782 5,760 6,542 1,878 4,664 2,485
Ridge Crest.............. 612 5,801 6,413 1,906 4,507 2,507
Rillito Village.......... 1,220 7,172 8,392 995 7,397 4,062
Rivercrest............... 751 4,263 5,014 27 4,987 2,869
Riverside................ 1,553 9,580 11,133 1,308 9,825 6,046
Riverwalk................ 1,075 9,628 10,703 841 9,862 5,688
Royal Palms.............. 832 4,895 5,727 687 5,040 3,561
Sand Castles............. 978 5,557 6,535 36 6,499 3,156
Sand Pebble.............. 861 4,904 5,765 31 5,734 2,756
Sandpiper Cove........... 4,006 22,764 26,770 627 26,143 16,068
Sawgrass................. 1,443 8,230 9,673 160 9,513 4,980
Seaside Point............ 295 3,182 3,477 793 2,684 --
Seasons.................. 982 6,194 7,176 512 6,664 4,534
Shadetree................ 591 3,367 3,958 21 3,937 2,098
Shadow Lake.............. 1,054 5,991 7,045 38 7,007 3,295
Signature Point.......... 2,160 13,680 15,840 1,671 14,169 7,472
Silktree................. 421 2,399 2,820 15 2,805 1,585
Snug Harbor.............. 750 3,219 3,969 268 3,701 2,076
Somerset Village......... 4,375 18,126 22,501 1,104 21,397 8,537
South Willow............. 2,218 13,395 15,613 1,827 13,786 8,379
Southridge............... 565 5,857 6,422 2,212 4,210 2,132
Spectrum Pointe.......... 1,029 6,259 7,288 816 6,472 4,357
Stirling Court........... 946 6,241 7,187 2,709 4,478 3,598
Stonebrook............... 1,583 9,193 10,776 225 10,551 6,374
Stonehaven............... 1,197 8,686 9,883 675 9,208 4,160
Stoney Brook............. 579 4,150 4,729 953 3,776 741
Summer Chase............. 170 973 1,143 23 1,120 694
Sun Grove................ 659 3,881 4,540 546 3,994 (B)
Sun Katcher.............. 578 9,060 9,638 142 9,496 (A)
Sun Valley............... 1,306 7,762 9,068 939 8,129 5,600
Sunbury Downs............ 565 4,563 5,128 1,001 4,127 2,491
Sunchase-Clearwater...... 2,177 20,486 22,663 1,377 21,286 17,550
Sunchase-East............ 927 9,040 9,967 1,126 8,841 9,210
Sunchase-North........... 1,013 9,752 10,765 1,218 9,547 12,354
Sunchase-Tampa........... 757 7,354 8,111 945 7,166 7,384
Surry Oaks............... 628 3,578 4,206 23 4,183 2,346
Swiss Village............ 1,011 10,369 11,380 3,655 7,725 4,596
Tall Timbers............. 1,238 7,033 8,271 45 8,226 4,180
Tara Bridge.............. 1,610 9,157 10,767 246 10,521 7,694
</TABLE>
See Report of Independent Auditors and accompanying notes to the consolidated
financial statements.
F-36
<PAGE> 126
<TABLE>
<CAPTION>
INITIAL COST COST
------------------------ CAPITALIZED
DATE YEAR NUMBER BUILDINGS AND SUBSEQUENT TO
PROPERTY NAME ACQUIRED LOCATION BUILT OF UNITS LAND IMPROVEMENTS ACQUISITION
- ------------- -------- -------- --------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Timbermill............... 10/95 San Antonio, TX 1982 296 778 4,674 501
Timbertree............... 10/97 Phoenix, AZ 1980 387 2,334 13,229 25
Township at Highlands.... 11/96 Denver, CO 1986 119 1,058 11,166 418
Tustin Woods............. 06/97 Tustin, CA 1971 292 6,279 15,373 1,614
Twinbridge............... 10/97 Tucson, AZ 1982 104 310 1,757 11
Villa Ladera............. 1/96 Albuquerque, NM 1985 280 1,765 10,013 738
Village Creek............ 07/94 Denver, CO 1987 324 2,446 13,901 843
Village Park Towers...... 10/97 North Miami, FL 1979 871 3,173 17,978 38
Vinings.................. 06/97 Aventura, FL 1991 180 4,504 11,702 97
Walnut Springs........... 12/96 San Antonio, TX 1983 224 851 8,076 176
Waterford................ 11/96 Houston, TX 1984 312 533 5,692 127
Wickertree............... 10/97 Phoenix, AZ 1983 226 1,225 6,944 25
Wildflower............... 10/97 Midland, TX 1982 264 705 3,996 25
Williams Cove............ 07/94 Dallas, TX 1984 260 1,227 6,972 409
Windsor Landing.......... 10/97 Morrow, GA 1991 200 1,641 9,298 20
Windward at the
Village................. 10/97 West Palm Beach, FL 1988 196 1,595 9,037 15
Woodhill................. 12/96 Denton, TX 1985 352 1,578 13,199 408
Woodhollow............... 10/97 Austin, TX 1974 108 658 3,728 12
Woodland Ridge........... 12/96 Irving, TX 1984 130 1,021 4,507 78
Woodlands-Odessa......... 07/94 Odessa, TX 1982 232 676 3,835 532
Woodlands-Tyler.......... 07/94 Tyler, TX 1984 256 1,029 5,845 405
Wydewood................. 10/97 Midland, TX 1982 218 519 2,943 15
Yorktree................. 10/97 Carol Stream, IL 1972 293 1,968 11,151 23
1,029
------ -------- ---------- -------
Sub-total............... 40,039 257,534 1,329,755 62,251
------ -------- ---------- -------
Properties under
development or held for
development:
Fairways III land....... 07/94 2,303 -- --
Morton Towers land...... 9/97 4,446 -- 401
Villa Ladera land....... 03/96 470 9 38
------ -------- ---------- -------
Total............. 40,039 $264,753 $1,329,764 $62,690
====== ======== ========== =======
<CAPTION>
DECEMBER 31, 1997
----------------------------------------------------------------------------------
TOTAL COST TOTAL COST
------------------------------------- NET OF
BUILDINGS AND ACCUMULATED ACCUMULATED
PROPERTY NAME LAND IMPROVEMENTS TOTAL DEPRECIATION DEPRECIATION ENCUMBRANCES
- ------------- -------- ------------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Timbermill............... 778 5,175 5,953 431 5,522 (A)
Timbertree............... 2,334 13,254 15,588 85 15,503 8,035
Township at Highlands.... 1,058 11,584 12,642 2,187 10,455 9,019
Tustin Woods............. 6,279 16,987 23,266 1,251 22,015 (A)
Twinbridge............... 310 1,768 2,078 11 2,067 1,159
Villa Ladera............. 1,765 10,751 12,516 855 11,661 5,646
Village Creek............ 2,446 14,744 17,190 2,014 15,176 (B)
Village Park Towers...... 3,173 18,016 21,189 -- 21,189 (A)
Vinings.................. 4,504 11,799 16,303 275 16,028 7,956
Walnut Springs........... 851 8,252 9,103 2,329 6,774 4,859
Waterford................ 533 5,819 6,352 1,582 4,770 4,068
Wickertree............... 1,225 6,969 8,194 45 8,149 4,224
Wildflower............... 705 4,021 4,726 26 4,700 2,116
Williams Cove............ 1,227 7,381 8,608 1,052 7,556 3,928
Windsor Landing.......... 1,641 9,318 10,959 60 10,899 5,554
Windward at the
Village................. 1,595 9,052 10,647 91 10,556 4,810
Woodhill................. 1,578 13,607 15,185 4,782 10,403 5,903
Woodhollow............... 658 3,740 4,398 24 4,374 2,133
Woodland Ridge........... 1,021 4,585 5,606 1,542 4,064 2,109
Woodlands-Odessa......... 676 4,367 5,043 574 4,469 (B)
Woodlands-Tyler.......... 1,029 6,250 7,279 868 6,411 4,255
Wydewood................. 519 2,958 3,477 19 3,458 1,671
Yorktree................. 1,968 11,174 13,142 72 13,070 6,766
1,029 1,029 1,029 88
-------- ---------- ---------- -------- ---------- --------
Sub-total............... 258,351 1,391,189 1,649,540 153,285 1,496,255 755,431
-------- ---------- ---------- -------- ---------- --------
Properties under
development or held for
development:
Fairways III land....... 2,303 2,303 2,303
Morton Towers land...... 4,446 401 4,847 4,847
Villa Ladera land....... 470 47 517 517
-------- ---------- ---------- -------- ---------- --------
Total............. $265,570 $1,391,637 $1,657,207 $153,285 $1,503,922 $755,431
======== ========== ========== ======== ========== ========
</TABLE>
- ---------------
(A) Pledged as security for the Credit Facility.
(B) Pledges as additional collateral for secured tax-exempt financing.
(C) Debt is owned by AIMCO and is therefore eliminated in consolidation.
See Report of Independent Auditors and accompanying notes to the consolidated
financial statements.
F-37
<PAGE> 127
AIMCO PROPERTIES, L.P.
REAL ESTATE AND ACCUMULATED DEPRECIATION
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
---------- -------- --------
<S> <C> <C> <C>
REAL ESTATE
Balance at beginning of year............................ $ 865,222 $477,162 $406,067
Additions during the year:
Real estate acquisitions............................. 786,571 388,574 63,351
Additions............................................ 26,808 17,993 7,744
Dispositions......................................... (21,394) (18,507) --
---------- -------- --------
Balance at end of year.................................. $1,657,207 $865,222 $477,162
========== ======== ========
ACCUMULATED DEPRECIATION
Balance at beginning of year............................ $ 120,077 $ 28,737 $ 13,699
Additions during the year:
Depreciation......................................... 37,741 19,556 15,038
Additions............................................ -- 73,189 --
Dispositions......................................... (4,533) (1,405) --
---------- -------- --------
Balance at end of year.................................. $ 153,285 $120,077 $ 28,737
========== ======== ========
</TABLE>
See Report of Independent Auditors and accompanying notes to consolidated
financial statements.
F-38
<PAGE> 128
AIMCO PROPERTIES, L.P.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
----------- ------------
(UNAUDITED)
<S> <C> <C>
Real Estate, net of accumulated depreciation of $297,895 and
$153,285 (See Note 3)..................................... $2,287,309 $1,503,922
Property held for sale...................................... 35,695 6,284
Investments in securities (see Note 4)...................... 5,767 22,144
Investments in and notes receivable from unconsolidated
subsidiaries (see Note 5)................................. 108,105 84,459
Investments in and notes receivable from unconsolidated real
estate partnerships (see Note 6).......................... 243,799 212,150
Cash and cash equivalents................................... 49,320 37,088
Restricted cash............................................. 75,123 24,229
Accounts receivable......................................... 26,201 28,656
Deferred financing costs.................................... 22,629 12,793
Goodwill, net of accumulated amortization of $3,171 and
$522...................................................... 122,068 125,239
Other assets................................................ 78,725 43,546
---------- ----------
Total assets...................................... $3,054,741 $2,100,510
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Secured notes payable (see Note 7).......................... $ 751,337 $ 681,421
Secured tax-exempt bond financing (see Note 8).............. 394,662 74,010
Unsecured short-term financing (see Note 9)................. 118,476 --
Secured short-term financing................................ 50,000 53,099
---------- ----------
Total indebtedness.......................................... 1,314,475 808,530
---------- ----------
Accounts payable, accrued and other liabilities............. 155,129 88,170
Resident security deposits and prepaid rents................ 12,882 10,213
---------- ----------
Total liabilities................................. 1,482,486 906,913
---------- ----------
Commitments and contingencies (see Note 11)................. -- --
Minority interest (see Note 12)............................. 43,167 36,335
Partners' Capital (see Note 13)
General and Special Limited Partner....................... 1,135,748 912,404
Preferred Units........................................... 258,863 134,579
Limited Partners.......................................... 134,694 111,962
Accumulated other comprehensive income.................... (217) (1,683)
---------- ----------
Total partners' capital........................... 1,529,088 1,157,262
---------- ----------
Total liabilities and partners' capital........... $3,054,741 $2,100,510
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-39
<PAGE> 129
AIMCO PROPERTIES, L.P.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER UNIT DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE FOR THE SIX
MONTHS ENDED MONTHS ENDED
-------------------- --------------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
RENTAL PROPERTY OPERATIONS
Rental and other property revenues....................... $ 89,928 $ 41,679 $161,264 $ 79,719
Property operating expenses.............................. (33,334) (16,704) (59,643) (31,160)
Owned property management expenses....................... (2,581) (1,413) (4,713) (2,734)
Depreciation............................................. (20,312) (7,591) (34,289) (15,046)
-------- -------- -------- --------
Income from property operations.......................... 33,701 15,971 62,619 30,779
-------- -------- -------- --------
SERVICE COMPANY BUSINESS
Management fees and other income......................... 4,741 3,161 9,562 5,605
Management and other expenses............................ (3,509) (1,223) (5,470) (2,643)
Partnership overhead allocation.......................... (49) (147) (196) (294)
Other assets and depreciation............................ -- (73) (3) (161)
-------- -------- -------- --------
Income from service company business..................... 1,183 1,718 3,893 2,507
Minority interests in service company business........... -- (1) (1) (2)
-------- -------- -------- --------
Partnership's share of income from service company
business............................................... 1,183 1,717 3,892 2,505
-------- -------- -------- --------
General and administrative expenses...................... (2,129) (433) (4,103) (784)
Interest expense......................................... (19,337) (11,152) (34,778) (20,604)
Interest income.......................................... 5,274 834 11,350 1,341
Minority interest in other partnerships.................. 66 (196) (516) (565)
Equity in losses of unconsolidated partnerships.......... (4,028) (379) (4,681) (379)
Equity in earnings of unconsolidated subsidiaries........ 1,541 (86) 5,609 (86)
Amortization of goodwill................................. (1,677) (237) (3,394) (474)
-------- -------- -------- --------
Income from operations................................... 14,594 6,039 35,998 11,733
Gain on disposition of properties........................ -- -- 2,526 --
-------- -------- -------- --------
Income before extraordinary item......................... 14,594 6,039 38,524 11,733
Extraordinary item -- early extinguishment of debt....... -- -- -- (269)
-------- -------- -------- --------
Net income............................................... $ 14,594 $ 6,039 $ 38,524 $ 11,464
======== ======== ======== ========
Net income attributable to Preferred Unitholders......... $ 4,969 $ -- $ 8,650 $ --
-------- -------- -------- --------
Net income attributable to OP Unitholders................ $ 9,625 $ 6,039 $ 29,874 $ 11,464
======== ======== ======== ========
Net income............................................... $ 14,594 $ 6,039 $ 38,524 $ 11,464
Other comprehensive income:
Unrealized loss on investment in securities............ 1,626 -- 1,466 --
-------- -------- -------- --------
Comprehensive income..................................... $ 16,220 $ 6,039 $ 39,990 $ 11,464
======== ======== ======== ========
Basic earnings per OP Unit............................... $ 0.19 $ 0.26 $ 0.61 $ 0.53
======== ======== ======== ========
Diluted earnings per OP Unit............................. $ 0.19 $ 0.26 $ 0.61 $ 0.53
======== ======== ======== ========
Weighted average OP Units outstanding.................... 51,159 23,387 48,812 21,455
======== ======== ======== ========
Weighted average OP Units and OP Unit equivalents
outstanding............................................ 51,400 23,525 49,015 21,590
======== ======== ======== ========
Distributions paid per OP Unit........................... $ 0.5625 $ 0.4625 $ 1.125 $ 0.925
======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-40
<PAGE> 130
AIMCO PROPERTIES, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income................................................ $ 38,524 $ 11,464
--------- ---------
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................... 38,666 17,067
Gain on disposition of property......................... (2,526) --
Minority interests...................................... 516 565
Equity in losses of unconsolidated partnerships......... 4,681 379
Equity in earnings of unconsolidated subsidiaries....... (5,609) 86
Extraordinary loss on early extinguishment of debt...... -- 269
(Increase) decrease in restricted cash.................. (15,375) 814
Decrease (increase) in accounts receivable.............. 12,310 (1,742)
(Increase) decrease in other assets..................... (22,735) (8,707)
Decrease in accounts payable, accrued and other
liabilities........................................... (36,385) 3,219
(Decrease) increase in resident security deposits and
prepaid rents......................................... (6,229) 1,621
--------- ---------
Total adjustments.................................. (32,686) 13,571
--------- ---------
Net cash provided by operating activities.......... 5,838 25,035
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of real estate......................... 11,206 --
Purchase of real estate................................... (30,405) (52,195)
Purchase of or advances on notes receivable............... (64,914) --
Cash received in connection with Ambassador Merger........ 4,492 --
Proceeds from repayments of notes receivable.............. 18,087 --
Purchase of general and limited partnership interests..... (10,894) (45,426)
Additions to property held for sale....................... (1,886) (354)
Capital replacements...................................... (13,538) (2,915)
Initial capital expenditures.............................. (7,965) (2,716)
Construction in progress and capital enhancements......... (5,263) (3,766)
Purchase of office equipment and leasehold improvements... -- (762)
Proceeds from sale of property held for sale.............. 411 --
--------- ---------
Net cash used in investing activities.............. (100,669) (108,134)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of OP Units, net of underwriting
and offering costs...................................... 9,004 114,335
Proceeds from issuance of Class D Preferred Units, net of
underwriting and offering costs......................... 100,294 --
Proceeds from issuance of High Performance Units.......... 1,978 --
Principal repayments received on notes due from Officers
on OP Unit purchases.................................... 5,730 11,619
Repurchase of OP Units.................................... (5,982) --
Proceeds from secured notes payable borrowings............ 32,284 86,111
Net Proceeds from unsecured short-term financing.......... -- 20,500
Net borrowings on the Partnership's revolving credit
facilities.............................................. 100,913 26,100
Principal repayments on secured notes payable............. (51,582) (2,554)
Principal repayments on secured tax-exempt bond
financing............................................... (979) (698)
Repayments on secured short-term financing................ (19,099) (146,261)
Payment of loan costs, net of proceeds from interest rate
hedge................................................... (6,659) 2,214
Payment of distributions to OP Unitholders................ (52,955) (19,916)
Payment of Preferred Unit distributions................... (5,884) --
--------- ---------
Net cash provided by financing activities.......... 107,063 91,450
--------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS................... 12,232 8,351
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 37,088 13,170
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 49,320 $ 21,521
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-41
<PAGE> 131
AIMCO PROPERTIES L.P.
CONSOLIDATED STATEMENTS OF CASH FLOW
(IN THOUSANDS EXCEPT SHARE AND OPERATING PARTNERSHIP 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............................................... $48,157
Real estate purchased in exchange for 794,210 OP Units...... 26,767
-------
$74,924
=======
</TABLE>
PURCHASE OF AMBASSADOR APARTMENTS, INC.
In May 1998, the Company acquired all of the common stock of Ambassador
Apartments, Inc., ("Ambassador"), in exchange for 6,578,833 shares of AIMCO
Class A Common Stock with a recorded value of $251.3 million (see Note 4).
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........................................... 251,420
</TABLE>
PROPERTY HELD FOR SALE
During the six months ended June 30, 1998, the Company entered into
contracts to sell two multifamily properties with a net book value of $27.9
million. These assets were reclassified to property held for sale.
RECEIPT OF NOTES PAYABLE FROM OFFICERS
During the six months ended June 30, 1998, the Company issued notes
receivable from officers for a total of $16.1 million in connection with their
purchase of 437,653 shares of Class A Common Stock. The notes receivable were
contributed to the Partnership in exchange for 437,653 OP Units.
OTHER
During the six months ended June 30, 1998, the Partnership issued an
additional 108,528 OP Units with a recorded value of $3,041 in connection with
the purchase of certain partnership interests.
During the six months ended June 30, 1998, the Company obtained control of
real estate partnerships which became consolidated. The non-cash effects are as
follows:
<TABLE>
<S> <C>
Real estate................................................. $3,802
Secured notes payable....................................... 3,395
Accounts payable, accrued and other liabilities............. 407
</TABLE>
F-42
<PAGE> 132
During the six months ended June 30, 1998, AIMCO contributed certain assets
and liabilities to unconsolidated subsidiaries and unconsolidated partnerships
as follows:
<TABLE>
<S> <C>
Investment in unconsolidated subsidiaries................... $ 18,925
Investment in unconsolidated partnerships................... 1,989
Accounts receivable......................................... 966
Accounts payable, accrued and other liabilities............. 21,880
</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............................................... $ 55,446
Real estate purchased in exchange for 497,794 OP Units...... 13,876
--------
$ 69,322
========
</TABLE>
PURCHASE OF 51.3% INTEREST IN NHP INCORPORATED
In May 1997, the Company acquired 2,866,071 shares of NHP Incorporated
("NHP") common stock in exchange for 2,142,857 shares of AIMCO Class A Common
Stock with a recorded value of $57,321. Subsequent to the purchase, the Company
contributed the NHP common stock to AIMCO/NHP Holdings, Inc. ("ANHI"), an
unconsolidated subsidiary formed in April 1997, in exchange for all of the
shares of ANHI's nonvoting preferred stock, representing a 95% economic interest
in ANHI.
Concurrent with this contribution, ANHI obtained a loan in the amount of
$72,600, and used the proceeds from the loan to purchase 3,630,002 additional
shares of NHP common stock. Upon the completion of these transactions, AIMCO and
ANHI owned a combined total of 6,496,073 shares of NHP common stock,
representing 51.3% of NHP's outstanding common stock as of May 31, 1997.
PURCHASE OF GENERAL AND LIMITED PARTNERSHIP INTERESTS, CAPTIVE INSURANCE
SUBSIDIARY AND OTHER ASSETS
The historical cost of the assets and the liabilities assumed in connection
with the purchase of NHP Partners, Inc., NHP Partners Two Limited Partners and
their subsidiaries (the "NHP Real Estate Companies") were as follows:
<TABLE>
<S> <C>
Real estate, net............................................ $102,455
Investment in real estate partnerships...................... 96,119
Restricted cash............................................. 2,946
Accounts receivable......................................... 12,784
Other assets................................................ 3,495
Secured notes payable....................................... (83,667)
Accounts payable, accrued and other liabilities............. (37,482)
Accrued management contract liability....................... 106,615
Resident security deposits and prepaid rent................. (416)
</TABLE>
PROPERTY HELD FOR SALE
In the second quarter of 1997, the Company entered into contracts to sell
multifamily properties with a net book value of $19,072. These assets were
reclassified to property held for sale.
ISSUANCE OF NOTES RECEIVABLE DUE FROM OFFICERS
During the six months ended June 30, 1997, AIMCO issued notes receivable
from officers for a total of $665 in connection with their purchase of 25,000
shares of Class A Common Stock. The notes receivable were contributed to the
Partnership in exchange for 25,000 OP Units.
F-43
<PAGE> 133
OTHER
During the six months ended June 30, 1997, the Company reclassified $1,323
of other assets to real estate as a purchase price allocation adjustment. In
addition, the Company wrote off $4,065 of other assets allocable to limited
partners in partnerships controlled by the Company, to minority interest.
During the six months ended June 30, 1997, the Partnership issued an
additional 1,333 OP Units with a recorded value of $36 in connection with the
purchase of certain partnership interests in 1996.
F-44
<PAGE> 134
AIMCO PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
(UNAUDITED)
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"). 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 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 interest in the Partners
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 June 30, 1998, the Partnership had 54,113,390 OP Units outstanding,
750,000 Class B Preferred Units outstanding, 2,400,000 Class C Preferred Units
outstanding, and 4,200,000 Class D Preferred Units outstanding.
At June 30, 1998, the Partnership, owned or controlled 58,345 units in 210
apartment properties (the "Owned Properties"), held an equity interest in 74,318
units in 478 apartment properties (the "Equity Properties") and managed 68,248
units in 357 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
200,911 units in 1,045 apartment properties. The AIMCO Properties are located in
42 states, the District of Columbia and Puerto Rico.
NOTE 2 -- BASIS OF PRESENTATION
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Partnership and subsidiaries and limited partnerships in which the
Partnership has a controlling financial interest. Interests
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<PAGE> 135
AIMCO PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 Partnership 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).
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 will be 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 period.
Earnings per Share
Earnings per share for the three and six months ended June 30, 1997, have
been restated to comply with Statement on Financial Accounting Standard No. 128,
Earnings Per Share (see Note 15).
Interim Information
The accompanying unaudited consolidated financial statements of the
Partnership as of June 30, 1998 and for the three and six months ended June 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.
The consolidated financial statements should be read in conjunction with
the audited consolidated financial statements and notes thereto included
elsewhere herein for the year ended December 31, 1997. It should be understood
that accounting measurements at interim dates inherently involve greater
reliance on estimates than at year end. The results of operations for the
interim periods presented are not necessarily indicative of the results for the
entire year.
F-46
<PAGE> 136
AIMCO PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3 -- REAL ESTATE
During the six months ended June 30, 1998, in addition to the merger with
Ambassador Apartments, Inc. (see Note 4), the Partnership purchased 12 apartment
communities containing 3,008 apartment units, as described below:
<TABLE>
<CAPTION>
DATE ACQUIRED PROPERTY LOCATION NUMBER OF UNITS
- ------------- -------- -------- ---------------
<S> <C> <C> <C>
1/98............................ Crossings at Bell Amarillo, TX 160
2/98............................ Steeplechase Tyler, TX 484
3/98............................ Casa Anita Phoenix, AZ 224
3/98............................ San Marina Phoenix, AZ 399
3/98............................ Cobble Creek 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
-----
3,008
=====
</TABLE>
The aggregate consideration paid by the Partnership of $105.4 million
consisted of $30.4 million in cash, 794,210 OP Units valued at $26.8 million and
the assumption of $48.2 million of secured long-term indebtedness. The cash
portions of the acquisitions were funded with borrowings under the Partnership's
revolving credit facilities.
In January 1998, the Partnership sold the Sun Valley Apartments, an
apartment community containing 430 apartment units located in Salt Lake City,
Utah, for $11.5 million, less selling costs of $0.3 million. The Partnership
recognized a $3.3 million gain on the sale.
As of June 30, 1998, the Partnership's management has indicated its intent
to sell the Rillito Village and Village Park properties. Accordingly, the
underlying assets of these properties have been reclassified from real estate to
property held for sale on the consolidated balance sheet.
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") for
$19.9 million in cash. The shares acquired represented 8.4% of the shares of
Ambassador Common Stock outstanding as of the date of the purchase. Ambassador
was a self-administered and self-managed real estate investment trust ("REIT")
engaged in the ownership and management of garden-style apartment properties
leased primarily to middle income tenants. 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.
On December 23, 1997, AIMCO and Ambassador entered into an Agreement and
Plan of Merger (the "Ambassador Merger Agreement") providing for the merger of
Ambassador with and into AIMCO, with AIMCO being the surviving corporation (the
"Ambassador Merger"), and that, unless otherwise agreed, the parties would use
their reasonable best efforts to effect a business combination of Ambassador
Apartments, L.P., a Delaware limited partnership (the "Ambassador Operating
Partnership"), and the Partnership. Subsequent to the execution of the
Ambassador Merger Agreement, the Partnership and Ambassador
F-47
<PAGE> 137
AIMCO PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Operating Partnership entered into an Agreement and Plan of Merger (the "OP
Merger Agreement") with AIMCO MergerSub, L.P., a Delaware limited partnership, a
99.9% owned subsidiary partnership of the Partnership ("MergerSub"), providing
for MergerSub to be merged with and into the Ambassador Operating Partnership,
with the Ambassador Operating Partnership surviving (the "OP Merger").
On May 8, 1998, holders of a majority of the outstanding shares of
Ambassador Common Stock voted to approve the merger with AIMCO. The Ambassador
Merger was completed the same day. 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, 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 and each outstanding unit of
limited partnership interest in the Ambassador Operating Partnership was
converted into the right to receive 0.553 OP Units. As a result, the Ambassador
Operating Partnership became a 99.9% owned subsidiary partnership of the
Partnership.
NOTE 5 -- INVESTMENTS IN AND NOTES RECEIVABLE FROM
UNCONSOLIDATED SUBSIDIARIES
In order to satisfy certain requirements of the Internal Revenue Code
("Code") applicable to AIMCO's status as a REIT, certain assets of the
Partnership 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 June 30,
1998, 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").
As of June 30, 1998, the Partnership's investment in the unconsolidated
subsidiaries totaled $108.1 million, which consisted of $50.0 million in notes
receivable from, $18.9 million in advances to, and $39.2 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
AIMCO/NHP Partners, L.P. ("ANPLP") owns general and limited partnership
interests that own conventional and affordable apartment units. ANPLP's
ownership interests in these partnerships range from 1% to 100%, and the
provisions of the partnership agreements give ANPLP varying degrees of control.
The Partnership owns a 99% limited partnership interest in ANPLP. 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. As of
June 30, 1998, the Partnership's investment in unconsolidated partnerships,
including ANPLP, totaled $243.8 million.
F-48
<PAGE> 138
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 June 30, 1998 and for the three and six months ended June 30, 1998 (in
thousands):
<TABLE>
<CAPTION>
JUNE 30, 1998
-------------
<S> <C> <C>
BALANCE SHEET DATA
Real estate, net of accumulated depreciation.............................. $2,017,854
Management contracts...................................................... 50,320
Goodwill.................................................................. 44,252
Other Assets.............................................................. 449,657
Total assets.............................................................. 2,564,450
Accounts payable and accrued liabilities.................................. 666,410
Secured notes payable..................................................... 2,749,673
Stockholders' and partners' equity (deficit).............................. (851,633)
Total liabilities and stockholders' equity (deficit)...................... 2,564,450
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 1998 JUNE 30, 1998
-------------- -------------
<S> <C> <C>
INCOME STATEMENT DATA
Rental and other property revenues...................... $ 182,784 $ 369,549
Property operating expenses............................. (122,173) (229,947)
Depreciation expense.................................... (29,472) (55,682)
Service company revenues................................ 16,806 37,585
Service company expenses................................ (11,338) (23,673)
Interest expense, net................................... (46,778) (99,515)
Net loss................................................ (11,421) (4,803)
</TABLE>
NOTE 7 -- SECURED NOTES PAYABLE
The following table summarizes the Partnership's secured notes payable, all
of which are non-recourse to the Partnership (dollars in thousands):
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
-------- ------------
<S> <C> <C>
Fixed rate, fully-amortizing notes.......................... $653,423 $561,056
Fixed rate, non-amortizing notes............................ 84,096 106,424
Floating rate, non-amortizing notes......................... 13,818 13,941
-------- --------
Total............................................. $751,337 $681,421
======== ========
</TABLE>
NOTE 8 -- SECURED TAX-EXEMPT BOND FINANCING
The following table summarizes the Partnership's secured tax-exempt bond
financing at June 30, 1998 and December 31, 1997 (dollars in thousands):
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
-------- ------------
<S> <C> <C>
Fixed rate, fully-amortizing bonds.......................... $ 55,302 $56,027
Fixed rate, non-amortizing bonds............................ 17,823 17,983
Floating rate, fully-amortizing bonds....................... 289,824 --
Floating rate, non-amortizing bonds......................... 31,713 --
-------- -------
Total............................................. $394,662 $74,010
======== =======
</TABLE>
F-49
<PAGE> 139
AIMCO PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9 -- SECURED AND UNSECURED 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, including variable rate revolving credit facilities, as well as
various fixed and floating rate term loans.
In January 1998, the Partnership replaced its previous revolving credit
facility with a new $50 million unsecured revolving credit facility with Bank of
AmericaNational Trust and Savings Association ("Bank of America") and
BankBoston, N.A. (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. In May 1998, the Partnership amended the BOA
Credit Facility to increase its borrowing capacity thereunder 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 additional
borrowing capacity was used to facilitate the closing of the Ambassador Merger
(see Note 4) and will be further utilized to complete the Insignia Merger (see
Note 12). 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 availability of funds to the 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 Partnership had outstanding borrowings under the BOA Credit
Facility of $118.5 million as of June 30, 1998.
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 $50 million secured credit facility
agreement (the "WMF Credit Facility") with Washington Mortgage Financial Group,
Ltd. ("Washington Mortgage"), which provides for the conversion of all or a
portion of such revolving credit facility to a term facility. The WMF Credit
Facility provides that all of the rights of Washington Mortgage are assigned to
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 the 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. The interest rate on each advance is determined by the investor bids for
FNMA mortgage-backed securities, plus a margin presently equal to 0.5%. The
maturity date of each advance under the revolving portion of the WMF Credit
Facility is a date between three and nine months from the closing date of the
advance, as selected by the Partnership. Advances under the term facility mature
at a date, selected by the Partnership, between ten and twenty years from the
date of the advance. The WMF Credit Facility was fully utilized at June 30,
1998.
NOTE 10 -- INTEREST RATE LOCK AGREEMENTS
From time to time, the Company 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 Company to interest rate risk; (b) the
interest rate lock is designated as a hedge; (c) the significant characteristics
and
F-50
<PAGE> 140
AIMCO PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
expected terms of the refinance are identified; and (d) it is probable that the
refinance will occur. The Company 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.
In September 1997, the Partnership 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.
NOTE 11 -- INTEREST RATE SWAP AGREEMENTS
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
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.
Gains and losses on the termination of interest-rate swap agreements are
deferred as an adjustment to the carrying amount of the outstanding debt and
amortized as an adjustment to interest expense related to the debt over the
remaining term of the original contract life of the terminated swap agreement.
In the event of the early extinguishment of a designated debt obligation, any
realized or unrealized gain or loss from the swap would be recognized in income
coincident with the extinguishment gain or loss.
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.
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement Of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which is required to be adopted in years
beginning after June 15, 1999. As the Company has only minimal use of
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<PAGE> 141
AIMCO PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
derivatives, management does not anticipate that this new statement will have a
material effect on its financial statements.
NOTE 12 -- COMMITMENTS
High Performance Units
In January 1998, the Partnership agreed to sell 15,000 Class I High
Performance Partnership Units (the "High Performance Units") to a partnership
owned by fourteen members of AIMCO's senior management, and to three of its
non-employee directors for $2.1 million in cash. The High Performance Units have
nominal value unless the Company's total return, defined as distribution income
plus share price appreciation, over the three year period ending December 31,
2000, is at least 30% and exceeds the industry average, as determined by a peer
group index, by at least 15% (the "Total Return"). At the conclusion of the
three year period, if the Company's Total Return satisfies these criteria, the
holders of the High Performance Units will receive distributions and allocations
of income and loss from the Partnership in the same amounts and at the same
times as would holders of a number of OP Units equal to the quotient obtained by
dividing (i) the products of (a) 15% of the amount by which the Company's
cumulative Total Return over the three year period exceeds the greater of 115%
of a peer group index or 30% (such excess being the "Excess Return"), multiplied
by (b) the weighted average market value of the Company's outstanding OP Units,
by (ii) the market value of one share of Class A Common Stock at the end of the
three year period. The three year measurement period will be shortened in the
event of a change of control of the Company. Unlike OP Units, the High
Performance Units are not redeemable or convertible into Class A Common Stock.
Because there is substantial uncertainty that the High Performance Units will
have more than nominal value due to the required Total Return over the three
year term, the Partnership has not recorded any value to the High Performance
Units. If, however, the measurement period would have ended June 30, 1998, the
Excess Return would have been $114.9 million and the value of the High
Performance Units would have been $17.2 million, and such High Performance Units
would represent no dilutive effect on net income per share.
Insignia Merger
On March 17, 1998, AIMCO, the Partnership and Insignia Financial Group,
Inc. ("Insignia") and its subsidiary, Insignia/ESG, Inc. entered into a
definitive merger agreement as amended and restated as of May 26, 1998, (the
"Insignia Merger Agreement"), which provides for the merger (the "Insignia
Merger") of Insignia with and into AIMCO, with AIMCO being the surviving
corporation. Upon the completion of the Insignia Merger, the Partnership will
assume property management of approximately 185,000 apartment units, consisting
of 113,000 units owned by partnerships which will be controlled by the
Partnership and 72,000 units owned by third parties. In addition, the
Partnership will acquire an ownership interest of approximately 61% in Insignia
Properties Trust ("IPT"), which owns general and limited partnership interests
of approximately 32% (on a weighted average basis) in approximately 51,000
apartment units. The total transaction value of the Insignia Merger is
approximately $811.0 million, which includes the issuance of approximately
$303.0 million of AIMCO preferred stock, the assumption of approximately $308.0
million of mortgage indebtedness and the assumption of approximately $149.5
million of indebtedness represented by preferred convertible securities of an
Insignia subsidiary. The AIMCO preferred stock issued in the Insignia Merger
will generally (i) entitle the holders thereof to receive a special cash
dividend (the "Special Dividend"), when and if declared by AIMCO's Board of
Directors, of approximately $50.0 million in the aggregate (which is expected to
be paid prior to January 15, 1999), and (ii) automatically convert into shares
of AIMCO's Class A Common Stock upon payment in full of the Special Dividend.
The Partnership has agreed to offer to acquire the outstanding shares of
beneficial interest in IPT not held by Insignia at a price of at least $13.25
per IPT share, or approximately $100.0 million. In addition, IPT is party to a
merger agreement with Angeles Mortgage Investment Trust ("AMIT"), which, if
approved by AMIT's stockholders and consummated, will result in
F-52
<PAGE> 142
AIMCO PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the issuance of additional IPT shares and, therefore, the payment by the
Partnership in a merger with IPT of an additional approximate $51.2 million at
an assumed price of $13.25 per IPT share.
Consummation of the Insignia Merger is subject to the affirmative vote of
the holders of a majority of the outstanding shares of Insignia common stock,
the approval of all appropriate governmental and regulatory authorities and
other customary conditions.
NOTE 13 -- MINORITY INTERESTS
Interests held by limited partners (other than the Company) in real estate
partnerships controlled by the Company are reflected as Minority Interests. Net
income is allocated based on the percentage interest owned by these limited
partners in each respective real estate partnership.
NOTE 14 -- PARTNERS' CAPITAL
In February 1998, AIMCO issued 4,200,000 shares of Class D Cumulative
Preferred Stock in a public offering. 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 is senior to the Class A
Common Stock, and ranks on a parity with the Class B Preferred Stock, Class C
Preferred Stock, the Class G Cumulative Preferred Stock (see Note 16) and the
Class H Cumulative Preferred Stock (see Note 16) as to distributions upon
liquidation. Upon any liquidation, dissolution or winding up of AIMCO, before
payment or distributions by AIMCO shall be made to any holders of Class A Common
Stock, the holders of the Class D Preferred Stock are entitled to receive a
liquidation preference of $25 per share, plus accrued and unpaid distributions.
The net proceeds of $100.3 million were used to repay indebtedness under the BOA
Credit Facility.
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 Company 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 and are being amortized over the vesting
period. The Oxford Warrants were issued in a private transaction exempt from
registration under the Securities Act pursuant to Section 4(2).
During the six months ended June 30, 1998, the AIMCO sold 437,653 shares of
Class A Common Stock to certain members of AIMCO's management, at an average
price of $36.77 per share. In payment for the stock, such members of management
executed notes payable to AIMCO totaling $16.1 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 437,653 OP Units.
In March 1998, the Partnership repurchased 163,600 OP Units from AIMCO and,
in turn, AIMCO repurchased 163,600 shares of Class A Common Stock on the open
market, for $6.0 million, or an average price of $36.55 per share.
In July 1998, AIMCO issued 4,050,000 shares of 9 3/8% Class G Cumulative
Preferred Stock, par value $0.01 per share ("Class G Preferred Stock"), in a
public offering (see Note 16). The net proceeds were contributed by AIMCO to the
Partnership in exchange for 4,050,000 Class G Preferred Units.
F-53
<PAGE> 143
AIMCO PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In August 1998, AIMCO issued 2,000,000 shares of 9 1/2% Class H Cumulative
Preferred Stock, par value $0.01 per share ("Class H Preferred Stock"), in a
public offering (see Note 16). The net proceeds were contributed by AIMCO to the
Partnership in exchange for 2,000,000 Class H Preferred Units.
NOTE 15 -- EARNINGS PER OP UNIT
The following table illustrates the calculation of basic and diluted
earnings per OP Unit for the three and six months ended June 30, 1998 and 1997
(in thousands, except per unit data):
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS SIX MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30, ENDED JUNE 30, ENDED JUNE 30,
1998 1997 1998 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Numerator:
Net Income.................. $14,594 $ 6,039 $38,524 $11,464
Preferred unit
distributions............ (4,969) -- (8,650) --
------- ------- ------- -------
Numerator for basic and
diluted earnings per OP
Unit -- income attributable
to
OP Unitholders.............. $ 9,625 $ 6,039 $29,874 $11,464
======= ======= ======= =======
Denominator:
Denominator for basic
earnings per OP
Unit -- weighted average
number of OP Units
outstanding.............. 51,159 23,387 48,812 21,455
Effect of dilutive
securities............... 241 138 203 135
------- ------- ------- -------
Denominator for dilutive
earnings per OP Unit........ 51,400 23,525 49,015 21,590
======= ======= ======= =======
Basic earnings per OP Unit:
Operations.................. $ 0.19 $ 0.26 $ 0.56 $ 0.54
Gain on disposition of
properties............... -- -- 0.05 --
Extraordinary item.......... -- -- -- (0.01)
------- ------- ------- -------
Total............... $ 0.19 $ 0.26 $ 0.61 $ 0.53
======= ======= ======= =======
Diluted earnings per OP Unit:
Operations.................. $ 0.19 $ 0.26 $ 0.56 $ 0.54
Gain on disposition of
properties............... -- -- 0.05 --
Extraordinary item.......... -- -- -- (0.01)
------- ------- ------- -------
Total............... $ 0.19 $ 0.26 $ 0.61 $ 0.53
======= ======= ======= =======
</TABLE>
NOTE 16 -- SUBSEQUENT EVENTS
Sunset Village Acquisition
On July 2, 1998, the Partnership purchased Sunset Village Apartments, a
114-unit apartment community located in Oceanside, California. Total
consideration paid of $7.5 million was comprised of $1.8 million in cash, the
issuance of 1,985 OP Units valued at $0.1 million, and the assumption of $5.6
million of mortgage indebtedness.
F-54
<PAGE> 144
AIMCO PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Sunset Citrus Acquisition
On July 2, 1998, the Partnership purchased Sunset Citrus Apartments, a
97-unit apartment community located in Vista, California. Total consideration
paid of $4.4 million was comprised of $0.7 million in cash, the issuance of
1,110 OP Units valued at $0.04 million, and the assumption of $3.6 million of
mortgage indebtedness.
Rancho Escondido Acquisition
Also on July 2, 1998, the Partnership purchased Rancho Escondido
Apartments, a 334-unit apartment community located in Escondido, California.
Total consideration paid of $20.7 million was comprised of $6.6 million in cash,
the issuance of 5,491 OP Units valued at $0.3 million, and the assumption of
$13.8 million of mortgage indebtedness.
Distribution Declared
On July 23, 1998, the AIMCO Board of Directors and AIMCO, as the General
Partner, declared a cash distribution of $0.5625 per OP Unit for the quarter
ended June 30, 1998, payable on August 14, 1998 to OP Unitholders of record on
August 7, 1998.
Issuance of Preferred Units
In July 1998, AIMCO issued 4,050,000 shares of Class G Preferred Stock in a
public offering. The net proceeds were contributed by AIMCO to the Partnership
in exchange for 4,050,000 Class G Preferred Units. Holders of the Class G
Preferred Stock (which mirror those of the Class G Preferred Units) are entitled
to receive, when, as and if declared by the Board of Directors, annual cash
dividends equal to $2.34375 per share. The Class G Preferred Stock is senior to
the Class A Common Stock, and ranks on a parity with the Class B Cumulative
Convertible Preferred Stock, Class C Cumulative Preferred Stock, Class D
Cumulative Preferred Stock and Class H Preferred Stock as to dividends and upon
liquidation. Upon any liquidation, dissolution or winding up of AIMCO, before
payments or distributions are made by AIMCO to any holders of Class A Common
Stock, the holders of the Class G Preferred Stock are entitled to receive a
liquidation preference of $25 per share, plus accumulated, accrued and unpaid
dividends. The net proceeds of approximately $98.0 million were used to repay
$83.0 million of outstanding indebtedness under the BOA Credit Facility, to fund
acquisitions and for general corporate purposes.
In August 1998, AIMCO issued 2,000,000 shares of Class H Preferred Stock in
a public offering. The net proceeds were contributed by AIMCO to the Partnership
in exchange for 2,000,000 Class H Preferred Units. Holders of the Class H
Preferred Stock (which mirror those of the Class H Preferred Units) are entitled
to receive, when, as and if declared by the Board of Directors, annual cash
dividends equal to $2.375 per share. The Class G Preferred Stock is senior to
the Class A Common Stock, and ranks on a parity with the Class B Cumulative
Convertible Preferred Stock, Class C Cumulative Preferred Stock, Class D
Preferred Stock and Class G Preferred Stock as to dividends and upon
liquidation. Upon any liquidation, dissolution or winding up of AIMCO, before
payments or distributions are made by AIMCO to any holders of Class A Common
Stock, the holders of the Class H Preferred Stock are entitled to receive a
liquidation preference of $25 per share, plus accumulated, accrued and unpaid
dividends. The net proceeds of approximately $48.1 million were used to repay
indebtedness under the BOA Credit Facility.
F-55
<PAGE> 145
PRO FORMA FINANCIAL INFORMATION OF
AIMCO PROPERTIES, L.P.
(PRE-INSIGNIA MERGER)
INTRODUCTION
In May and September of 1997, Apartment Investment and Management Company,
a Maryland Corporation ("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 Incorporated ("NHP"). On December 8, 1997,
AIMCO acquired the remaining shares of NHP Common Stock in a merger transaction
accounted for as a purchase (the "NHP Merger"). As a result of the NHP Merger,
AIMCO issued 6,759,148 shares of AIMCO Class A Common Stock, par value $0.01 per
share (the "AIMCO Common Stock"), valued at $180.8 million, and paid $86.5
million in cash. The total cost of the purchase of NHP was $349.5 million.
Substantially all assets and liabilities of NHP were contributed by AIMCO to
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")).
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 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 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 will result in certain of the assets of the NHP
Real Estate Companies being owned by a limited partnership (the "Unconsolidated
Partnership") in which the Partnership holds a 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 Internal Revenue Code (the "Code") applicable to AIMCO's
status as a REIT, the Company engaged in a reorganization (the "NHP
Reorganization") of the assets and operations of NHP that resulted in the Master
Property Management Agreement being terminated and NHP's operations being
conducted through corporations (the "Unconsolidated Subsidiaries") in which the
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, pursuant to which
Ambassador Apartments, Inc. ("Ambassador") was merged into AIMCO (the
"Ambassador Merger"). Each outstanding share of Ambassador Common Stock, other
than those shares held by the Partnership or Ambassador, were converted into
0.553 shares of AIMCO Common Stock. Any outstanding options to purchase
Ambassador Common Stock were converted, at the election of the option holder,
into cash or options to purchase AIMCO Common Stock at their current exercise
price divided by the Conversion Ratio. In accordance with the Agreement and Plan
of Merger, dated December 23, 1997 and supplemented by letter dated as of March
11, 1998 (the "Ambassador Merger Agreement"), the outstanding shares of Class A
Senior Cumulative 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 limited partnership units in the Partnership ("OP
Units"), and as a result, the Ambassador Operating Partnership became a 99.9%
owned subsidiary partnership of the Partnership.
F-56
<PAGE> 146
Also during 1997; (i) the Partnership acquired (a) 44 properties for
aggregate purchase consideration of $467.4 million, of which $56.0 million was
paid in the form of 1.9 million 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) AIMCO sold (a)
approximately 16,367,000 shares of AIMCO Common Stock for aggregate net proceeds
of $513.4 million; (b) 750,000 shares of Class B Cumulative Convertible
Preferred Stock for net proceeds of $75 million; and (c) 2,400,000 shares of
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) the
Partnership sold five real estate properties (the "1997 Dispositions").
During 1998, (i) (a) AIMCO sold 4,200,000 shares of its Class D Cumulative
Preferred Stock for net proceeds of $101.5 million; (b) sold 4,050,000 shares of
its Class G Cumulative Preferred Stock for net proceeds of $98.0 million (the
"Class G Preferred Stock Offering"); and (c) sold 2,000,000 shares of its Class
H Cumulative Preferred Stock for net proceeds of $48.1 million (the "Class H
Preferred Stock Offering"); of which all proceeds were contributed by AIMCO to
the Partnership in exchange for 4,200,000 Class D Preferred Units, 4,050,000
Class G Preferred Units, and 2,000,000 Class H Preferred Units, respectively
(collectively, the "1998 Stock Offerings"); (ii) the Partnership purchased 15
properties for aggregate purchase consideration of $138.0 million, of which
$27.3 million was paid in the form of 0.7 million OP Units (the "1998
Acquisitions"); (iii) the Partnership sold one real estate property (the "1998
Disposition"); and (iv) the Company completed the Ambassador Merger.
PRO FORMA FINANCIAL INFORMATION (PRE-INSIGNIA MERGER)
The following Pro Forma Consolidated Balance Sheet (Pre-Insignia Merger) of
the Partnership as of June 30, 1998 has been prepared as if each of the
following transactions had occurred as of June 30, 1998: (i) the purchase of
three properties for an aggregate purchase price of $32.6 million; (ii) the
Class G Preferred Stock Offering; and (iii) the Class H Preferred Stock
Offering.
The following Pro Forma Consolidated Statement of Operations (Pre-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 1998 Disposition; and (xii) the Ambassador Merger.
The following Pro Forma Consolidated Statement of Operations (Pre-Insignia
Merger) of the Partnership for the six months ended June 30, 1998 has been
prepared as if each of the following transactions had occurred as of January 1,
1997: (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the 1998
Disposition; and (iv) the Ambassador Merger.
The following Pro Forma Financial Information (Pre-Insignia Merger) is
based, in part, on the following historical financial statements, which are
included or incorporated by reference elsewhere herein: (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 six months ended June 30, 1998; (iii) the audited
Consolidated Financial Statements of Ambassador for the year ended December 31,
1997; (iv) the unaudited Consolidated Financial Statements of Ambassador for the
four months ended April 30, 1998; (v) the unaudited Consolidated Financial
Statements of NHP for the nine months ended September 30, 1997; (vi) the
unaudited Combined Financial Statements of the NHP Real Estate Companies for the
three months ended March 31, 1997; (vii) the unaudited Financial Statements of
NHP Southwest Partners, L.P. for the three months ended March 31, 1997; (viii)
the unaudited Combined Financial Statements of the NHP New LP Entities for the
three months ended March 31, 1997; (ix) the unaudited Combined Financial
Statements of the NHP Borrower Entities for the three months ended March 31,
1997; (x) the unaudited
F-57
<PAGE> 147
Historical Summaries of Gross Income and Certain Expenses of The Bay Club at
Aventura for the three months ended March 31, 1997; (xi) the unaudited
Historical Summary of Gross Income and Direct Operating Expenses of Morton
Towers for the six months ended June 30, 1997; (xii) the unaudited Combined
Statement of Revenues and Certain Expenses of the Thirty-Five Acquisition
Properties for the six months ended June 30, 1997; (xiii) the unaudited
Statement of Revenues and Certain Expenses of First Alexandria Associates, a
Limited Partnership for the nine months ended September 30, 1997; (xiv) the
unaudited Statement of Revenues and Certain Expenses of Country Lakes Associates
Two, A Limited Partnership, for the nine months ended September 30, 1997; (xv)
the unaudited Statement of Revenues and Certain Expenses Point West Limited
Partnership, A Limited Partnership, for the nine months ended September 30,
1997; and (xvi) the unaudited Statement of Revenues and Certain Expenses of The
Oak Park Partnership, for the nine months ended September 30, 1997. The
following Pro Forma Financial Information (Pre-Insignia Merger) should be read
in conjunction with such financial statements and the notes thereto.
The unaudited Pro Forma Financial Information (Pre-Insignia Merger) has
been prepared using the purchase method of accounting whereby the assets and
liabilities of NHP, the NHP Real Estate Companies, Ambassador, the 1997
Acquisitions, and the 1998 Acquisitions are adjusted to estimated fair market
value, based upon preliminary estimates, which are subject to change as
additional information is obtained. The allocations of purchase costs are
subject to final determination based upon estimates and other evaluations of
fair market value. Therefore, the allocations reflected in the following
unaudited Pro Forma Financial Information (Pre-Insignia Merger) may differ from
the amounts ultimately determined.
The following unaudited Pro Forma Financial Information (Pre-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.
F-58
<PAGE> 148
AIMCO PROPERTIES, L.P.
PRO FORMA CONSOLIDATED BALANCE SHEET (PRE-MERGER)
AS OF JUNE 30, 1998
IN THOUSANDS, EXCEPT UNIT DATA
<TABLE>
<CAPTION>
COMPLETED PRO
HISTORICAL(A) TRANSACTIONS(B) FORMA
------------- --------------- ----------
<S> <C> <C> <C>
Real estate..................................... $2,287,309 $ 32,624 $2,319,933
Property held for sale.......................... 35,695 -- 35,695
Investments in securities....................... 5,767 -- 5,767
Investments in and notes receivable from
unconsolidated subsidiaries................... 108,105 -- 108,105(C)
Investments in and notes receivable from
unconsolidated real estate partnerships....... 243,799 -- 243,799
Cash and cash equivalents....................... 49,320 -- 49,320
Restricted cash................................. 75,123 -- 75,123
Accounts receivable............................. 26,201 -- 26,201
Deferred financing costs........................ 22,629 -- 22,629
Goodwill........................................ 122,068 -- 122,068
Other assets.................................... 78,725 -- 78,725
---------- --------- ----------
$3,054,741 $ 32,624 $3,087,365
========== ========= ==========
Secured notes payable........................... $ 751,337 $ 23,031 $ 774,368
Secured tax-exempt bond financing............... 394,662 -- 394,662
Secured short term financing.................... 50,000 (38,532) 11,468
Unsecured short-term financing.................. 118,476 (97,987) 20,489
Accounts payable, accrued and other
liabilities................................... 155,129 -- 155,129
Security deposits and prepaid rents............. 12,882 -- 12,882
---------- --------- ----------
1,482,486 (113,488) 1,368,998
Minority interest............................... 43,167 -- 43,167
Partners' capital
General and Special Limited Partner........... 1,135,748 -- 1,135,748
Preferred Units............................... 258,863 146,112 404,975
Limited Partners.............................. 134,694 -- 134,694
Accumulated other comprehensive losses........ (217) -- (217)
---------- --------- ----------
1,529,088 146,112 1,675,200
---------- --------- ----------
$3,054,741 $ 32,624 $3,087,365
========== ========= ==========
</TABLE>
- ---------------
(A) Represents the unaudited historical consolidated financial position of the
Partnership as of June 30, 1998, included elsewhere herein.
(B) Represents adjustments to reflect the purchase of three properties for an
aggregate purchase price of $32.6 million; the sale of 4,050,000 shares of
AIMCO Class G Preferred Stock for net proceeds of $98.0 million; and the
sale of 2,000,000 shares of AIMCO Class H Preferred Stock for net proceeds
of $48.1 million.
(C) Represents notes receivable from the Unconsolidated Subsidiaries of
$50,000; advances to the Unconsolidated Subsidiaries of $18,933; and equity
in the Unconsolidated Subsidiaries of $39,172. The combined historical
balance sheet of the Unconsolidated Subsidiaries as of June 30, 1998 is
presented below. There were no pro forma adjustments to the balance sheet
as of June 30, 1998.
F-59
<PAGE> 149
UNCONSOLIDATED SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET (PRE-INSIGNIA MERGER)
AS OF JUNE 30, 1998
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
----------
<S> <C>
Real estate................................................. $ 21,727
Cash and cash equivalents................................... 5,627
Restricted cash............................................. 5,010
Management contracts........................................ 50,320
Deferred financing costs.................................... 3,217
Goodwill.................................................... 44,252
Other assets................................................ 21,020
--------
Total assets...................................... $151,173
========
Secured notes payable....................................... $ 72,037
Accounts payable, accrued and other liabilities............. 41,761
Security deposits and prepaid rents......................... 316
--------
114,114
Common stock................................................ 2,319
Preferred stock............................................. 39,172
Retained earnings........................................... (4,174)
Notes receivable on common stock purchases.................. (258)
--------
37,059
--------
Total liabilities and equity...................... $151,173
========
</TABLE>
F-60
<PAGE> 150
AIMCO PROPERTIES, L.P.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (PRE-INSIGNIA MERGER)
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER UNIT DATA)
<TABLE>
<CAPTION>
AMBASSADOR
COMPLETED NHP AMBASSADOR PURCHASE PRICE PRO
HISTORICAL(A) TRANSACTIONS(B) TRANSACTIONS(C) HISTORICAL(D) ADJUSTMENTS(E) FORMA
------------- --------------- --------------- ------------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Rental and other property
revenues.................... $193,006 $102,295(F) $ 6,660 $ 93,329 $ -- $ 395,290
Property operating expenses... (76,168) (50,662)(F) (2,941) (36,088) -- (165,859)
Owned property management
expense..................... (6,620) (3,510)(F) (282) -- -- (10,412)
Depreciation.................. (37,741) (20,828)(F) (1,414) (18,979) (5,997)(J) (84,959)
-------- -------- ------- -------- -------- ---------
Income from property
operations.................. 72,477 27,295 2,023 38,262 (5,997) 134,060
-------- -------- ------- -------- -------- ---------
Management fees and other
income...................... 13,937 -- 7,813 -- -- 21,750
Management and other
expenses.................... (9,910) -- (5,394) -- -- (15,304)
Corporate overhead
allocation.................. (588) -- -- -- -- (588)
Amortization.................. (1,401) -- (5,800) -- -- (7,201)
-------- -------- ------- -------- -------- ---------
Income from service company
business.................... 2,038 -- (3,381) -- -- (1,343)
Minority interest in service
company business............ (10) -- -- -- -- (10)
-------- -------- ------- -------- -------- ---------
Partnership's share of income
from service company
business.................... 2,028 -- (3,381) -- -- (1,353)
-------- -------- ------- -------- -------- ---------
General and administrative
expenses.................... (5,396) -- (1,025) (7,392) 7,392(K) (6,421)
Interest expense.............. (51,385) (1,626)(G) (5,462) (26,987) (221)(L) (85,681)(O)
Interest income............... 8,676 -- 1,900 -- -- 10,576
Minority interest............. 1,008 779(H) 16 (851) 705(M) 1,657
Equity in losses of
unconsolidated
partnerships................ (1,798) (122)(I) (8,542) 405 -- (10,057)
Equity in earnings of
unconsolidated
subsidiaries................ 4,636 -- 5,790 -- -- 10,426(Q)
-------- -------- ------- -------- -------- ---------
Income from operations........ 30,246 26,326 (8,681) 3,437 1,879 53,207
Gain on dispositions of
property.................... 2,720 (2,720) -- -- -- --
-------- -------- ------- -------- -------- ---------
Income before extraordinary
item........................ 32,966 23,606 (8,681) 3,437 1,879 53,207
Extraordinary item -- early
extinguishment of debt...... (269) 269 -- -- -- --
-------- -------- ------- -------- -------- ---------
Net income.................... 32,697 23,875 (8,681) 3,437 1,879 53,207
Income attributable to
Preferred Unitholders....... 2,315 31,859 -- 2,296 (2,296)(N) 34,174(P)
-------- -------- ------- -------- -------- ---------
Income attributable to OP
Unitholders................. $ 30,382 $ (7,984) $(8,681) $ 1,141 $ 4,175 $ 19,033(O)
======== ======== ======= ======== ======== =========
Basic earnings OP Unit........ $ 1.09 $ 0.36(O)
======== =========
Diluted earnings OP Unit...... $ 1.08 $ 0.35(O)
======== =========
Weighted average OP Units
outstanding................. 27,732 53,307
======== =========
Weighted average OP Units and
equivalents outstanding..... 28,113 53,688
======== =========
</TABLE>
- ---------------
(A) Represents the Partnership's audited consolidated results of operations
for the year ended December 31, 1997, included elsewhere herein.
(B) Represents adjustments to reflect the following as if they had occurred
on January 1, 1997: (i) the 1997 Acquisitions; (ii) the 1997 Stock
Offerings; (iii) the 1997 Dispositions; (iv) the 1998 Stock Offerings;
(v) the 1998 Acquisitions; and (vi) the 1998 Disposition.
(C) Represents adjustments to reflect the purchase of the NHP Real Estate
Companies, the NHP Merger, and the NHP Reorganization, as if the
transactions had taken place on January 1, 1997. These adjustments are
detailed, as follows:
F-61
<PAGE> 151
<TABLE>
<CAPTION>
NHP
REAL ESTATE NHP NHP NHP NHP
PURCHASE(i) HISTORICAL(ii) ADJUSTMENTS(iii) REORGANIZATION(iv) TRANSACTIONS
----------- -------------- ---------------- ------------------ ------------
<S> <C> <C> <C> <C> <C>
Rental and other property
revenues........................ $ 6,660(v) $ 16,842 $ -- $(16,842)(xvii) $ 6,660
Property operating expenses....... (2,941)(v) (8,411) -- 8,411(xvii) (2,941)
Owned property management
expense......................... (282)(v) (862) -- 862(xvii) (282)
Depreciation...................... (1,414)(vi) (2,527) (693)(xi) 3,220(xvii) (1,414)
------- -------- ------- -------- -------
Income from property operations... 2,023 5,042 (693) (4,349) 2,023
------- -------- ------- -------- -------
Management fees and other
income.......................... 1,405(vii) 72,176 -- (65,768)(xviii) 7,813
Management and other expenses..... (2,263)(viii) (35,267) -- 32,136(xviii) (5,394)
Corporate overhead allocation..... -- -- -- -- --
Amortization...................... -- (9,111) (4,432)(xii) 7,743(xix) (5,800)
------- -------- ------- -------- -------
Income from service company
business........................ (858) 27,798 (4,432) (25,889) (3,381)
Minority interest in service
company business................ -- -- -- -- --
------- -------- ------- -------- -------
Partnership's share of income from
service company business........ (858) 27,798 (4,432) (25,889) (3,381)
------- -------- ------- -------- -------
General and administrative
expenses........................ -- (16,266) 8,668(xiii) 6,573(xviii) (1,025)
Interest expense.................. (5,082)(ix) (10,685) -- 10,305(xx) (5,462)
Interest income................... 540(v) 1,963 -- (603)(xxi) 1,900
Minority interest................. 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)
Income attributable to Preferred
Unitholders..................... -- -- -- -- --
------- -------- ------- -------- -------
Income (loss) attributable to OP
Unitholders..................... $(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 Company 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
Company to consummate the NHP Real Estate Acquisition.
(ii) Represents the unaudited consolidated results of operations of NHP for
the period from January 1, 1997 through December 8, 1997 (date of NHP
Merger).
(iii) Represents the following adjustments occurring as a result of the NHP
Merger: (i) the reduction in personnel costs, primarily severance costs,
pursuant to a restructuring plan; (ii) the incremental depreciation of
the purchase price adjustment related to real estate; (iii) the
incremental amortization of the purchase price adjustment related to the
management contracts, furniture, fixtures and equipment, and goodwill;
(iv) the reversal of equity in earnings of NHP during the pre-merger
period when AIMCO held a 47.62% interest in NHP; and (v) the amortization
of the increased basis in investments in real estate partnerships based
on the purchase price adjustment related to real estate and an estimated
average life of 20 years.
(iv) Represents adjustments related to the NHP Reorganization, whereby the
Company will contribute or sell to the Unconsolidated Subsidiaries and
the Unconsolidated Partnership: (i) certain assets and liabilities of
NHP,
F-62
<PAGE> 152
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 Company'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 Facility of $55,807 to finance the
NHP Real Estate Acquisition
(x) Represents adjustments in the amount of $2,432 to reflect the acquisition
of the NHP Real Estate Companies and the corresponding historical results
of operations as if they had occurred on January 1, 1997, as well as
amortization of $1,473 related to the increased basis in investment in
real estate partnerships, as a result of the allocation of the purchase
price of the NHP Real Estate Companies, based on an estimated average
life of 20 years.
(xi) Represents incremental depreciation related to the real estate assets
purchased from NHP. Buildings and improvements are depreciated on the
straight-line method over a period of 20 years, and furniture and
fixtures are depreciated on the straight-line method over a period of 5
years.
(xii) Represents incremental depreciation and amortization of the tangible and
intangible assets related to the property management and other business
operated by the Unconsolidated Subsidiaries, based on the Company'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 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.
F-63
<PAGE> 153
(xv) Represents the reversal of equity in earnings in NHP during the
pre-merger period when AIMCO held a 47.62% interest in NHP, as a result
of AIMCO's acquisition of 100% of the NHP Common Stock.
(xvi) Represents the reversal of NHP's income tax provision due to the
restructuring of the management business to the Unconsolidated
Subsidiaries.
(xvii) Represents the contribution of NHP's 12 real estate properties containing
2,905 apartment units to the Unconsolidated Partnership pursuant to the
NHP Reorganization.
(xviii)Represents the historical income and expenses associated with certain
assets and liabilities of NHP that were contributed or sold to the
Unconsolidated Subsidiaries, primarily related to the management
operations and other businesses owned by NHP.
(xix) Represents the amortization and depreciation of certain management
contracts and other assets of NHP, based on the Company'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 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.
(F) Represents adjustments to reflect the 1997 Property Acquisitions and the
1998 Acquisitions, less the 1997 Dispositions and the 1998 Disposition as
if they had occurred on January 1, 1997. These pro forma operating
results are based on historical results of the properties, except for
depreciation, which is based on the Partnership's investment in the
properties.
These adjustments are as follows:
<TABLE>
<CAPTION>
1997 PROPERTY 1997 1998 1998
ACQUISITIONS DISPOSITIONS ACQUISITIONS DISPOSITION TOTAL
------------- ------------ ------------ ----------- --------
<S> <C> <C> <C> <C> <C>
Rental and other property revenues.... $ 88,589 $(4,081) $19,892 $(2,105) $102,295
Property operating expense............ (44,109) 1,944 (9,280) 783 (50,662)
Owned property management expense..... (3,233) 133 (485) 75 (3,510)
Depreciation.......................... (16,839) 452 (4,795) 354 (20,828)
</TABLE>
F-64
<PAGE> 154
(G) Represents adjustments to interest expense for the following:
<TABLE>
<S> <C>
Borrowings on the Partnership's Credit Facility and other
loans and mortgages assumed in connection with the 1997
Property Acquisitions..................................... $(29,427)
Repayments on the Partnership's Credit Facility and other
indebtedness with proceeds from the 1997 Dispositions and
the 1997 Stock Offerings.................................. 19,505
Repayments on the Partnership's Credit Facility with
proceeds from a distribution received from one of the
Unconsolidated Subsidiaries............................... 1,889
Borrowings on the Partnership's Credit Facility and other
loans and mortgages assumed in connection with the 1998
Acquisitions.............................................. (8,270)
Repayments on the Partnership's Credit Facility and other
indebtedness with proceeds from the 1998 Disposition and
the 1998 Stock Offerings.................................. 14,677
--------
$ (1,626)
========
</TABLE>
(H) Represents income related to limited partners in consolidated
partnerships acquired in connection with the 1997 Property Acquisitions.
(I) Represents the reduction in the Partnership's earnings in unconsolidated
partnerships as a result of the consolidation of additional partnerships
resulting from additional ownership acquired through tender offers.
(J) Represents incremental depreciation related to the real estate assets
purchased in connection with the Ambassador Merger. Buildings and
improvements are depreciated on the straight-line method over a period of
30 years, and furniture and fixtures are depreciated on the straight-line
method over a period of 5 years.
(K) Decrease results from identified historical costs of certain items which
will be eliminated or reduced as a result of the Ambassador Merger, as
follows:
<TABLE>
<S> <C>
Duplication of public company expenses...................... $ 724
Reduction in salaries and benefits.......................... 4,197
Merger related costs........................................ 524
Other....................................................... 1,947
------
$7,392
======
</TABLE>
The reduction in salaries and benefits is pursuant to a restructuring
plan, approved by 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.
(L) Represents the decrease in interest expense of $3,612 related to the
repayment of the Ambassador revolving lines of credit upon consummation
of the Ambassador Merger, offset by an increase in interest expense of
$3,833 related to borrowings under the Partnership's line of credit.
(M) Represents elimination of minority interest in Jupiter-I, L.P. resulting
from the redemption of limited partnership interests not owned by
Ambassador in connection with the Ambassador Merger.
(N) Represents the elimination of the preferred stock distributions of
Ambassador upon the conversion of the Ambassador Preferred Stock to AIMCO
Common Stock.
F-65
<PAGE> 155
(O) The following table presents the net impact to pro forma net income
applicable to holders of OP Units and net income per OP Unit assuming the
interest rate per annum increases by 0.25%:
<TABLE>
<S> <C>
Increase in interest expense................................ $ 114
=======
Net income.................................................. $53,093
=======
Net income attributable to OP Unitholders................... $18,919
=======
Basic income per OP Unit.................................... $ 0.36
=======
Diluted income per OP Unit.................................. $ 0.36
=======
</TABLE>
(P) 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, and the Class H Preferred Units as if
these Preferred Unit issuances had occurred as of January 1, 1997.
(Q) Represents the Partnership's equity in earnings in the Unconsolidated
Subsidiaries of $5,676, plus the elimination of intercompany interest
expense of $4,750. The combined Pro Forma Statement of Operations
(Pre-Insignia Merger) of the Unconsolidated Subsidiaries for the year
ended December 31, 1997 is presented below, which represents the effects
of the Ambassador Merger, the NHP Merger and the NHP Reorganization as if
these transactions had occurred as of January 1, 1997.
F-66
<PAGE> 156
UNCONSOLIDATED SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (PRE-INSIGNIA MERGER)
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
REORGANIZATION
HISTORICAL(i) ADJUSTMENTS(ii) PRO FORMA
------------- --------------- ---------
<S> <C> <C> <C>
Rental and other property revenues.................... $ 6,194 $ 6,371(iii) $ 12,565
Property operating expenses........................... (3,355) (3,531)(iii) (6,886)
Owned property management expense..................... (147) (478)(iii) (625)
Depreciation expense.................................. (1,038) (767)(iii) (1,805)
-------- --------- --------
Income from property operations....................... 1,654 1,595 3,249
-------- --------- --------
Management fees and other income...................... 23,776 41,992(iv) 65,768
Management and other expenses......................... (11,733) (20,403)(iv) (32,136)
Amortization.......................................... (3,726) (4,017)(iv) (7,743)
-------- --------- --------
Income from service company........................... 8,317 17,572 25,889
-------- --------- --------
General and administrative expense.................... -- (6,573)(iv) (6,573)
Interest expense...................................... (6,058) (5,849)(v) (11,907)
Interest income....................................... 1,001 (148)(iv) 853
Minority interest..................................... (2,819) 2,198(vii) (621)
Equity in losses of unconsolidated partnerships....... (1,028) 1,028(iii) --
Equity in earnings of Unconsolidated Subsidiaries..... 2,943 (2,943)(vi) --
-------- --------- --------
Income from operations................................ 4,010 6,880 10,890
Income tax provision.................................. (1,902) (3,013)(viii) (4,915)
-------- --------- --------
Net income............................................ $ 2,108 $ 3,867 $ 5,975
======== ========= ========
Income attributable to preferred stockholders......... $ 2,003 $ 3,673 $ 5,676
======== ========= ========
Income attributable to common stockholders............ $ 105 $ 194 $ 299
======== ========= ========
</TABLE>
- ---------------
(i) Represents the historical results of operations of the Unconsolidated
Subsidiaries for the year ended December 31, 1997.
(ii) Represents adjustments related to the NHP Reorganization, which includes
the sale or contribution of 14 properties containing 2,725 apartment units
from the unconsolidated partnerships to the Unconsolidated Subsidiaries,
as well as the sale or contribution of 12 properties containing 2,905
apartment units from the Unconsolidated Subsidiaries to the Unconsolidated
Partnership.
(iii) Represents adjustments for the historical results of operations of the 14
real estate properties contributed or sold to the Unconsolidated
Subsidiaries, offset by the historical results of operations of the 12
real estate properties contributed or sold to the Unconsolidated
Partnership, with additional depreciation recorded related to the
Company's new basis resulting from the allocation of purchase price of NHP
and the NHP Real Estate Companies.
(iv) Represents adjustments to reflect income and expenses associated with
certain assets and liabilities of NHP contributed or sold to the
Unconsolidated Subsidiaries.
(v) Represents adjustments of $6,058 to reverse the historical interest
expense of the Unconsolidated Subsidiaries, which resulted from its
original purchase of NHP Common Stock, offset by $2,622 related to the
contribution or sale of the 14 real estate properties, $4,285 related to
assets and liabilities transferred from the Partnership to the
Unconsolidated Subsidiaries and $5,000 related to a note payable to the
Partnership.
F-67
<PAGE> 157
(vi) Represents the reversal of the historical equity in earnings of NHP for
the period in which NHP was not consolidated by the Unconsolidated
Subsidiaries.
(vii) Represents the minority interest in the operations of the 14 real estate
properties.
(viii)Represents the estimated Federal and state tax provisions, which are
calculated on the pro forma operating results of the Unconsolidated
Subsidiaries, excluding amortization of goodwill which is not deductible
for tax purposes.
F-68
<PAGE> 158
AIMCO PROPERTIES, L.P.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (PRE-INSIGNIA MERGER)
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(IN THOUSANDS, EXCEPT PER UNIT DATA)
<TABLE>
<CAPTION>
AMBASSADOR
COMPLETED AMBASSADOR PURCHASE PRICE
HISTORICAL(A) TRANSACTIONS(B) HISTORICAL(C) ADJUSTMENTS(D) PRO FORMA
------------- --------------- ------------- --------------- ---------
<S> <C> <C> <C> <C> <C>
Rental and other property
revenues.......................... $ 161,264 $ 6,199(E) $ 35,480 $ -- $ 202,943
Property operating expenses......... (59,643) (2,534)(E) (14,912) -- (77,089)
Owned property management expense... (4,713) (167)(E) -- -- (4,880)
Depreciation........................ (34,289) (1,489)(E) (7,270) (1,420)(G) (44,468)
------------- --------------- ------------- --------------- ---------
Income from property operations..... 62,619 2,009 13,298 (1,420) 76,506
------------- --------------- ------------- --------------- ---------
Management fees and other income.... 9,562 -- -- -- 9,562
Management and other expenses....... (5,470) -- -- -- (5,470)
Corporate overhead allocation....... (196) -- -- -- (196)
Amortization........................ (3) -- -- -- (3)
------------- --------------- ------------- --------------- ---------
Income from service company
business.......................... 3,893 -- -- -- 3,893
Minority interest in service company
business.......................... (1) -- -- -- (1)
------------- --------------- ------------- --------------- ---------
Partnership's share of income from
service company business.......... 3,892 -- -- -- 3,892
------------- --------------- ------------- --------------- ---------
General and administrative
expenses.......................... (4,103) -- (5,278) 5,278(H) (4,103)
Interest expense.................... (34,778) 2,982(F) (10,079) 145(I) (41,730)(K)
Interest income..................... 11,350 -- -- -- 11,350
Minority interest................... (516) -- (252) 252(J) (516)
Equity in losses of unconsolidated
partnerships...................... (4,681) -- (71) -- (4,752)
Equity in earnings of Unconsolidated
Subsidiaries...................... 5,609 -- -- -- 5,609(M)
Amortization of goodwill............ (3,394) -- -- -- (3,394)
------------- --------------- ------------- --------------- ---------
Income from operations.............. 35,998 4,991 (2,382) 4,255 42,862
Gain on dispositions of property.... 2,526 (2,526) -- -- --
------------- --------------- ------------- --------------- ---------
Net income.......................... 38,524 2,465 (2,382) 4,255 42,862(K)
Income attributable to Preferred
Unitholders....................... 8,650 8,354 -- -- 17,004(L)
------------- --------------- ------------- --------------- ---------
Income attributable to OP
Unitholders....................... $ 29,874 $ (5,889) $ (2,382) $ 4,255 $ 25,858(K)
============= =============== ============= =============== =========
Basic earnings per OP Unit.......... $ 0.61 $ 0.48(K)
============= =========
Diluted earnings per OP Unit........ $ 0.61 $ 0.48(K)
============= =========
Weighted average OP Units
outstanding....................... 48,812 53,922
============= =========
Weighted average OP Units and
equivalents outstanding........... 49,015 54,125
============= =========
</TABLE>
- ---------------
(A) Represents the Partnership's unaudited consolidated results of operations
for the six months ended June 30, 1998, included elsewhere herein.
(B) Represents adjustments to reflect the following as if they had occurred on
January 1, 1998: (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions;
and (iii) the 1998 Disposition.
(C) Represents the unaudited historical statement of operations of Ambassador
for the four months ended April 30, 1998. Certain reclassifications have
been made to Ambassador's historical Statement of Operations to conform to
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
F-69
<PAGE> 159
expense resulting from the net reduction of debt; and (iv) the elimination
of the minority interest associated with Jupiter I, L.P.
(E) Represents adjustments to reflect the 1998 Acquisitions, less the 1998
Disposition as if they had occurred on January 1, 1998. These pro forma
operating results are based on historical results of the properties, except
for depreciation, which is based on the Partnership's investment in the
properties.
These adjustments are as follows:
<TABLE>
<CAPTION>
1998 1998
ACQUISITIONS DISPOSITION TOTAL
------------ ----------- -------
<S> <C> <C> <C>
Rental and other property revenues........... $ 6,297 $(98) $ 6,199
Property operating expense................... (2,625) 91 (2,534)
Owned property management expense............ (173) 6 (167)
Depreciation................................. (1,507) 18 (1,489)
</TABLE>
(F) Represents adjustments to interest expense for the following:
<TABLE>
<S> <C>
Borrowings on the Partnership's Credit Facility and other
loans and mortgages assumed in connection with the 1998
Acquisitions.............................................. $(2,760)
Repayments on the Partnership's Credit Facility and other
indebtedness with proceeds from the 1998 Disposition and
the 1998 Stock Offerings.................................. 5,742
-------
$ 2,982
=======
</TABLE>
(G) Represents incremental depreciation related to the real estate assets
purchased in connection with the Ambassador Merger. Buildings and
improvements are depreciated on the straight-line method over a period of
30 years, and furniture and fixtures are depreciated on the straight-line
method over a period of 5 years.
(H) Decrease results from identified historical costs of certain items which
will be eliminated or reduced as a result of the Ambassador Merger, as
follows:
<TABLE>
<S> <C>
Duplication of public company expenses...................... $ 355
Reduction in salaries and benefits.......................... 2,482
Merger related costs........................................ 1,212
Other....................................................... 1,229
------
$5,278
======
</TABLE>
The reduction in salaries and benefits is pursuant to a restructuring plan,
approved by 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.
(I) Represents the decrease in interest expense of $1,480 related to the
repayment of the Ambassador revolving lines of credit upon consummation of
the Ambassador Merger, offset by an increase in interest expense of $1,335
related to borrowings under the Partnership's line of credit.
(J) Represents elimination of minority interest in Jupiter-I, L.P. resulting
from the redemption of limited partnership interests not owned by
Ambassador in connection with the Ambassador Merger.
F-70
<PAGE> 160
(K) The following table presents the net impact to pro forma net income
applicable to holders of OP Units and net income per OP Unit assuming the
interest rate per annum increases by 0.25%:
<TABLE>
<S> <C>
Increase in interest expense................................ $ 57
=======
Net income.................................................. $42,805
=======
Net income attributable to OP Unitholders................... $25,801
=======
Basic income per OP Unit.................................... $ 0.48
=======
Diluted income per OP Unit.................................. $ 0.48
=======
</TABLE>
(L) 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, and the Class H Preferred Units as if these Preferred
Unit issuances had occurred as of January 1, 1998.
(M) Represents the Partnership's equity in earnings in the Unconsolidated
Subsidiaries of $5,609. The combined historical statement of operations of
the unconsolidated subsidiaries for the six months ended June 30, 1998 is
presented below. There were no pro forma adjustments to the statement of
operations for the six months ended June 30, 1998.
F-71
<PAGE> 161
UNCONSOLIDATED SUBSIDIARIES
PRO FORMA CONSOLIDATED
STATEMENT OF OPERATIONS (PRE-INSIGNIA MERGER)
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
----------
<S> <C>
Rental and other property revenues.......................... $ 6,550
Property operating expenses................................. (3,390)
Owned property management expense .......................... (230)
Depreciation expense........................................ (650)
--------
Income from property operations............................. 2,280
--------
Management fees and other income............................ 37,585
Management and other expenses............................... (23,673)
Amortization................................................ (1,390)
--------
Income from service company................................. 12,522
--------
Interest expense............................................ (3,878)
Interest income............................................. 425
Minority interest........................................... (250)
--------
Income from operations...................................... 11,099
Income tax provision........................................ (5,195)
--------
Net income.................................................. $ 5,904
========
Income attributable to preferred stockholders............... $ 5,609
========
Income attributable to common stockholders.................. $ 295
========
</TABLE>
F-72
<PAGE> 162
PRO FORMA FINANCIAL INFORMATION OF
AIMCO PROPERTIES, L.P.
(INSIGNIA MERGER)
INTRODUCTION
On March 17, 1998, AIMCO entered into an Agreement and Plan of Merger (the
"Insignia Merger Agreement") with Insignia Financial Group, Inc.("Insignia")
pursuant to which Insignia will be merged with and into AIMCO with AIMCO as the
survivor (with the spin-off and merger with Insignia Properties Trust ("IPT") as
discussed below, the "Insignia Merger"). The Insignia Merger Agreement provides
that prior to the Insignia Merger, Insignia will spin-off (the "Distribution")
to its stockholders all assets related to its U.S. and international commercial
real estate business, its New York-based cooperative and condominium management
company, its single-family home brokerage operations and other select holdings.
Pursuant to the Indemnification Agreement entered into in connection with the
Insignia Merger Agreement (as amended and restated as of May 26, 1998, the
"Insignia Indemnification Agreement"), the spun off company ("Holdings") will
provide indemnification for certain liabilities arising under the Insignia
Merger Agreement.
In the Insignia Merger the common stock, par value $0.01 per share, of
Insignia ("Insignia Common Stock") will be converted, assuming the stockholders
of AIMCO and Insignia approve the Insignia Merger, into the right to receive an
aggregate number of shares of Class E Preferred Stock, par value $0.01 per
share, of AIMCO ("Class E Preferred Stock") approximately equal to $303 million
divided by the AIMCO Index Price, which is defined as the aggregate of the daily
average price of AIMCO Common Stock (computed based on the sum of the high and
low sales prices of AIMCO Common Stock (as reported on the NYSE Composite
Transactions reporting system as published in The Wall Street Journal or, if not
published therein, in another authoritative source) divided by two) on each of
the 20 consecutive NYSE trading days ending on the fifth NYSE trading day
immediately preceding the Effective Time, divided by 20; provided, however, that
if the AIMCO Index Price is greater than $38.00, then the AIMCO Index Price will
be deemed to be $38.00. In addition to receiving the same dividends as holders
of AIMCO Common Stock, holders of Class E Preferred Stock on the record date for
payment to be set by the AIMCO Board of Directors will be entitled to the
Special Dividend of $50 million in the aggregate, and when the Special Dividend
is paid, 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, there will remain outstanding approximately $308 million in
indebtedness and other liabilities of Insignia and its subsidiaries and
subsidiaries of the Partnership will assume approximately $149.5 million of
6 1/2% Trust Convertible Preferred Securities issued by Insignia Financing I, a
subsidiary of Insignia (the "Convertible Securities"), for a total transaction
value of approximately $811 million. Also, the Insignia Merger Agreement
provides that AIMCO is required to propose to acquire (by merger) the
outstanding shares of beneficial interest in IPT (the "IPT Merger"), at a price
of at least $13.25 per IPT share and use its reasonable best efforts to
consummate the IPT Merger after the closing of the Insignia Merger, but not
earlier than August 15, 1998. IPT is an approximately 61% owned subsidiary of
Insignia; the 39% of the shares of IPT not owned by Insignia are valued at an
aggregate of approximately $152 million, after considering the effect of the
proposed merger of IPT and Angeles Mortgage Investment Trust ("AMIT") (the
"IPT-AMIT Merger"), assuming a value of $13.25 per share. AIMCO will contribute
substantially all the assets and liabilities of Insignia acquired in the
Insignia Merger to the Partnership in exchange for approximately $303 million of
Class E Preferred Units. The Class E Preferred Units have terms substantially
the same as the Class E Preferred Stock. If the Insignia Merger is consummated,
the Partnership will assume property management of approximately 192,000
multifamily units which consist of general and limited partnership investments
in 115,000 units and third party management of 77,000 units. IPT owns a 32%
weighted average general and limited partnership interest in approximately
51,000 units.
The following Pro Forma Consolidated Balance Sheet (Insignia Merger) of the
Partnership as of June 30, 1998 has been prepared as if each of the following
transactions had occurred as of June 30, 1998: (i) all the transactions
discussed in the Pro Forma Financial Statements (Pre-Insignia Merger) appearing
elsewhere herein; (ii) the Insignia Merger; (iii) the Distribution; (iv) the
IPT-AMIT Merger; (v) the IPT
F-73
<PAGE> 163
Merger; and (vi) the transfer of certain assets and liabilities of Insignia to
the Unconsolidated Subsidiaries following the Insignia Merger (the "Insignia
Reorganization").
The following Pro Forma Consolidated Statement of Operations (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) all the transactions discussed in the Pro Forma Financial Statements
(Pre-Insignia Merger) appearing elsewhere herein; (ii) the Insignia Merger;
(iii) the Distribution; (iv) the IPT-AMIT Merger; (v) the IPT Merger; and (vi)
the Insignia Reorganization.
The following Pro Forma Consolidated Statement of Operations (Insignia
Merger) of the Partnership for the six months ended June 30, 1998 has been
prepared as if each of the following transactions had occurred as of January 1,
1997: (i) all the transactions discussed in the Pro Forma Financial Statements
(Pre-Insignia Merger) appearing elsewhere herein; (ii) the Insignia Merger;
(iii) the Distribution; (iv) the IPT-AMIT Merger; (v) the IPT Merger; and (vi)
the Insignia Reorganization.
The following Pro Forma Financial Information (Insignia Merger) is based,
in part, on: (i) the audited Consolidated Financial Statements of Insignia for
the year ended December 31, 1997; (ii) the audited Consolidated Financial
Statements of AMIT for the year ended December 31, 1997; (iii) the unaudited
Consolidated Financial Statements of Insignia for the six months ended June 30,
1998; and (iv) the unaudited Consolidated Financial Statements of AMIT for the
six months ended June 30, 1998. The following Pro Forma Financial Information
(Insignia Merger) is also based, in part, on the Pro Forma Financial Information
(Pre-Insignia Merger) of the Partnership included elsewhere herein. Such pro
forma information is based in part upon: (i) the audited Consolidated Financial
Statements of Ambassador for the year ended December 31, 1997; (ii) the audited
Consolidated Financial Statements of 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 six months ended June 30, 1998;
and (v) the historical financial statements of certain properties and companies
acquired by AIMCO filed in AIMCO's Current Reports on Form 8-K, dated April 16,
1997, May 5, 1997, June 3, 1997, September 19, 1997, October 15, 1997, and
December 1, 1997, incorporated by reference herein. The following Pro Forma
Financial Information (Insignia Merger) should be read in conjunction with such
financial statements and notes thereto.
The unaudited Pro Forma Financial Information (Insignia Merger) has been
prepared using the purchase method of accounting whereby the assets and
liabilities of Insignia are adjusted to estimated fair market value, based upon
preliminary estimates, which are subject to change as additional information is
obtained. The allocations of purchase costs are subject to final determination
based upon estimates and other evaluations of fair market value. Therefore, the
allocations reflected in the following unaudited Pro Forma Financial Information
(Insignia Merger) may differ from the amounts ultimately determined.
The unaudited Pro Forma Financial Information (Insignia Merger) has been
prepared under the assumption that the AIMCO stockholders approved the Insignia
Merger, the Class E Preferred Units have been converted to OP Units, the
IPT-AMIT Merger occurs, and the IPT Merger was consummated.
If the stockholders of AIMCO do not approve the Merger, the Merger may
nonetheless be consummated. However, instead of receiving a number of shares of
AIMCO Class E Preferred Stock approximately equal to $303 million divided by the
AIMCO Index Price, holders of Insignia Common Stock would receive a number of
shares of AIMCO Class E Preferred Stock approximately equal to $203 million
divided by the AIMCO Index Price, and a number of shares of AIMCO Class F
Preferred Stock approximately equal to $100 million divided by the AIMCO Index
Price. In either case, holders of AIMCO Class E Preferred Stock would be
entitled to the Special Dividend on the record date for payment to be set by the
AIMCO Board of Directors. Holders of AIMCO Class F Preferred Stock will be
entitled to receive the greater of (i) the dividends received by holders of
AIMCO Common Stock and (ii) preferred distributions of 10% of the liquidation
value of the AIMCO Class F Preferred Stock, with the preferred return rate
escalating by 1% each year until a 15% annual return is achieved. Upon the
approval by stockholders of AIMCO, the AIMCO Class F Preferred Stock will
convert into AIMCO Common Stock on a one-for-one basis, subject to antidilution
adjustments, if any. The AIMCO Index Price will be the average market price of
AIMCO
F-74
<PAGE> 164
Common Stock during the 20 NYSE trading days ending five business days prior to
the Merger, subject to a maximum average price of $38.00 per share. The AIMCO
Index Price is not intended to and will not necessarily represent the fair
market value of the AIMCO Class E Preferred Stock or the AIMCO Class F Preferred
Stock. The Class E Preferred Units and Class F Preferred Units have terms
substantially the same as Class E Preferred Stock and Class F Preferred Stock,
respectively.
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.
F-75
<PAGE> 165
AIMCO PROPERTIES, L.P.
PRO FORMA CONSOLIDATED BALANCE SHEET (INSIGNIA MERGER)
AS OF JUNE 30, 1998
(IN THOUSANDS, EXCEPT UNIT DATA)
<TABLE>
<CAPTION>
INSIGNIA THE PARTNERSHIP INSIGNIA
PRE-MERGER INSIGNIA MERGER BEFORE INSIGNIA REORGANIZATION AIMCO
PRO FORMA(A) AS ADJUSTED(B) ALLOCATIONS(C) REORGANIZATION(D) ADJUSTMENTS(E) PRO FORMA
------------ -------------- -------------- ----------------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Real estate.................... $2,319,933 $ 30,600 $ 21,348(F) $2,371,881 $ -- $2,371,881
Property held for sale......... 35,695 -- -- 35,695 -- 35,695
Investments in securities...... 5,767 -- 292,297(F)
(292,297)(G) 5,767 -- 5,767
Investments in and notes
receivable from
unconsolidated
subsidiaries................. 108,105 -- -- 108,105 14,561(H) 122,666(J)
Investments in and notes
receivable from
unconsolidated
partnerships................. 243,799 242,457 424,756(F) 911,012 -- 911,012
Mortgage notes receivable...... -- 35,316 -- 35,316 -- 35,316
Cash and cash equivalents...... 49,320 42,585 -- 91,905 (15,102)(I) 76,803
Restricted cash................ 75,123 -- -- 75,123 -- 75,123
Accounts receivable............ 26,201 24,385 -- 50,586 (23,773)(I) 26,813
Deferred financing costs....... 22,629 7,158 -- 29,787 -- 29,787
Goodwill....................... 122,068 19,836 13,145(F) 155,049 -- 155,049
Property management
contracts.................... -- 89,838 22,211(F) 112,049 (77,410)(H) 34,639
Other assets................... 78,725 22,780 (632)(F) 100,873 (8,954)(I) 91,919
---------- -------- --------- ---------- --------- ----------
$3,087,365 $514,955 $ 480,828 $4,083,148 $(110,678) $3,972,470
========== ======== ========= ========== ========= ==========
LIABILITIES AND PARTNERS'
CAPITAL
Secured notes payable.......... $ 774,368 $ 26,476 $ -- $ 800,844 $ -- $ 800,844
Secured tax-exempt bond
financing.................... 394,662 -- -- 394,662 -- 394,662
Secured short-term financing... 11,468 233,310 (297,000)(F)
152,000(F)
50,000(F)
308,434(F) 458,212 (50,000) 408,212
Unsecured short-term
financing.................... 20,489 1,647 -- 22,136 -- 22,136
Accounts payable, accrued and
other liabilities............ 155,129 32,669 20,000(F) 207,798 (44,931) 162,867
Deferred tax liability......... -- 18,802 (18,802)(F) (12,849) --
12,849(F) 12,849
Security deposits and deferred
income....................... 12,882 2,898 -- 15,780 (2,898) 12,882
---------- -------- --------- ---------- --------- ----------
1,368,998 315,802 227,481 1,912,281 (110,678) 1,801,603
Minority interest.............. 43,167 66,216 (66,216)(F) 43,167 -- 43,167
Company-obligated mandatorily
redeemable convertible
securities of a subsidiary
trust........................ -- 144,210 5,290(F) 149,500 -- 149,500
Partners' capital and
shareholders' equity
Common stock................. -- 358 (358)(F) -- -- --
Additional paid-in capital... -- (37,595) 37,595(F) -- -- --
Retained earnings............ -- 25,964 (25,964)(F) -- -- --
General and Special Limited
Partner.................... 1,135,748 -- 292,250(G)
10,750(F) 1,438,748 1,438,748
Preferred Units.............. 404,975 -- -- 404,975 -- 404,975
Limited Partners............. 134,694 -- -- 134,694 -- 134,694
Accumulated and other
comprehensive income....... (217) -- -- (217) -- (217)
---------- -------- --------- ---------- --------- ----------
1,675,200 (11,273) 314,273 1,978,200 -- 1,978,200
---------- -------- --------- ---------- --------- ----------
$3,087,365 $514,955 $ 480,828 $4,083,148 $(110,678) $3,972,470
========== ======== ========= ========== ========= ==========
</TABLE>
- ---------------
(A) Represents the Partnership's pro forma consolidated financial position as
of June 30, 1998, which gives effect to the purchase of three properties
for an aggregate purchase price of $32.6 million, the Ambassador Merger,
the Class G Preferred Stock Offering and the Class H Preferred Stock
Offering. See "Pro Forma Financial Information (Pre-Insignia Merger)."
F-76
<PAGE> 166
(B) Represents adjustments to reflect the Insignia Merger, including the
IPT-AMIT Merger, and the Distribution, as if these transactions had
occurred on June 30, 1998. These adjustments are detailed, as follows:
<TABLE>
<CAPTION>
INSIGNIA IPT-AMIT HOLDINGS INSIGNIA AS
HISTORICAL(i) MERGER(ii) DISTRIBUTION(iii) ADJUSTED
------------- ---------- ----------------- -----------
<S> <C> <C> <C> <C>
ASSETS
Real estate.................................... $ 25,808 $ 4,792 $ -- $ 30,600
Property held for sale......................... -- -- -- --
Investments in securities...................... -- -- -- --
Investments in and notes receivable from
unconsolidated subsidiaries.................. -- -- -- --
Investments in and notes receivable from
unconsolidated partnerships.................. 282,599 -- (40,142) 242,457
Mortgage notes receivable...................... -- 35,316 -- 35,316
Cash and cash equivalents...................... 57,807 6,248 (21,470) 42,585
Restricted cash................................ -- -- -- --
Accounts receivable............................ 147,569 604 (123,788) 24,385
Deferred financing costs....................... 7,158 -- -- 7,158
Goodwill....................................... 245,391 -- (225,555) 19,836
Property management contracts.................. 134,344 -- (44,506) 89,838
Other assets................................... 53,513 (258) (30,475) 22,780
-------- ------- --------- --------
$954,189 $46,702 $(485,936) $514,955
======== ======= ========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Secured notes payable.......................... $ 21,951 $ 4,525 $ -- $ 26,476
Secured tax-exempt bond financing.............. -- -- -- --
Secured short-term financing................... 265,737 -- (32,427) 233,310
Unsecured short-term financing................. 1,647 -- -- 1,647
Accounts payable, accrued and other
liabilities.................................. 147,116 1,629 (116,076) 32,669
Deferred tax liability......................... 24,865 -- (6,063) 18,802
Security deposits and deferred income.......... 4,349 -- (1,451) 2,898
-------- ------- --------- --------
465,665 6,154 (156,017) 315,802
Minority interest.............................. 66,484 -- (268) 66,216
Company-obligated mandatorily redeemable
convertible securities of a subsidiary
trust........................................ 144,210 -- -- 144,210
Common stock................................... 318 40 -- 358
Additional paid-in capital..................... 234,819 40,508 (312,922) (37,595)
Retained earnings.............................. 42,693 -- (16,729) 25,964
-------- ------- --------- --------
277,830 40,548 (329,651) (11,273)
-------- ------- --------- --------
$954,189 $46,702 $(485,936) $514,955
======== ======= ========= ========
</TABLE>
- ---------------
(i) Represents the unaudited consolidated financial position of Insignia as of
June 30, 1998, as reported on Insignia's Quarterly Report on Form 10-Q.
Certain reclassifications have been made to Insignia's historical balance
sheet to conform to the Partnership's balance sheet presentation.
(ii) Represents the historical balance sheet of AMIT, as well as pro forma
adjustments related to the IPT-AMIT Merger. The IPT-AMIT merger is expected
to close prior to the Insignia Merger.
(iii)Represents the distribution of two shares of Holdings Common Stock for each
three shares of Insignia Common Stock to holders of Insignia Common Stock.
(C) Represents the following adjustments occurring as a result of the Insignia
Merger: (i) the issuance of 7,690,784 shares of AIMCO Common Stock, based
on an AIMCO Index Price of $38.00 per share, as consideration to holders of
Insignia Common Stock outstanding as of the date of the Insignia Merger;
(ii) the additional purchase price consideration of $10,750 for the
Insignia Merger resulting from the Insignia Stock Options, which will be
converted to options to purchase shares of AIMCO Common Stock; (iii) the
IPT Merger; (iv) the payment of the Special Dividend of $50,000; (v) the
assumption of $149,500 of the Convertible Debentures; (vi) the allocation
of the combined purchase price of Insignia based on the preliminary
estimates of relative fair market value of the assets and liabilities of
F-77
<PAGE> 167
Insignia; and (vii) the contribution by AIMCO of substantially all the
assets and liabilities of Insignia to the Partnership in exchange for OP
Units.
(D) Represents the effects of the Company's acquisition of Insignia immediately
after the Insignia Merger. These amounts do not give effect to the Insignia
Reorganization, which includes the transfers of certain asset and
liabilities of Insignia to the Unconsolidated Subsidiaries. The Insignia
Reorganization must occur immediately after the Insignia Merger in order
for AIMCO to maintain its qualification as a REIT. This column is included
as an intermediate step to assist the reader in understanding the entire
nature of the Insignia Merger and related transactions.
(E) Represents adjustments related to the Insignia Reorganization, whereby,
following the Insignia Merger, the Partnership will contribute to the
Unconsolidated Subsidiaries certain assets and liabilities of Insignia,
primarily management contracts and related working capital assets and
liabilities related to Insignia's third-party 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 Insignia. the Partnership will receive non-voting preferred stock as
consideration in exchange for the net assets contributed. The net deferred
tax liability is assumed by the Unconsolidated Subsidiaries as it resulted
from the assets and liabilities transferred to the Unconsolidated
Subsidiaries.
(F) In connection with the Insignia Merger, AIMCO will issue 7,690,784 shares
of AIMCO Common Stock based on an AIMCO Index Price of $38.00 per share, to
acquire the shares of Insignia Common Stock owned by the Insignia
stockholders.
The total purchase price of Insignia is $995,783, as follows:
<TABLE>
<S> <C>
Issuance of 7,690,784 shares of AIMCO Common Stock in the
Merger, at $38.00 per share............................. $292,250
IPT Merger................................................ 152,000
Assumption of Convertible Debentures...................... 149,500
Assumption of Insignia liabilities as indicated in the
Insignia Merger Agreement............................... 308,434
Transaction costs......................................... 20,000
Generation of deferred tax liability...................... 12,849
Special Dividend.......................................... 50,000
Consideration for Insignia Stock Options outstanding...... 10,750
--------
Total........................................... $995,783
========
</TABLE>
The Insignia Stock Options will be assumed by AIMCO in the Insignia Merger.
The consideration for the Insignia Stock Options was calculated based on
the exercise of Insignia Stock Options at a value of $25 per share.
The purchase price was allocated to the various assets of Insignia acquired
in the Insignia Merger, as follows:
<TABLE>
<S> <C>
Purchase price........................................... $ 995,783
Historical basis of Insignia's assets acquired, adjusted
for the IPT -- AMIT Merger and the Distribution........ (514,955)
---------
Step-up to record the fair value of Insignia's assets
acquired............................................... $ 480,828
=========
</TABLE>
This step-up was applied to Insignia's assets as follows:
<TABLE>
<S> <C>
Real estate............................................... $ 21,348
Investment in real estate partnerships.................... 424,756
Management contracts...................................... 22,211
Goodwill.................................................. 13,145
Reduction in value of other assets........................ (632)
--------
Total........................................... $480,828
========
</TABLE>
F-78
<PAGE> 168
The fair value of Insignia's assets, primarily the real estate and
management contracts, was calculated based on estimated future cash flows
of the underlying assets.
As of June 30, 1998, Insignia's stockholder's deficit, as adjusted for the
IPT -- AMIT Merger and the Distribution, was $11,273, which is detailed as
follows:
<TABLE>
<S> <C>
Common stock.............................................. $ 358
Additional paid-in capital................................ (37,595)
Retained earnings......................................... 25,964
--------
Total........................................... $(11,273)
========
</TABLE>
Upon completion of the Insignia Merger, the entire amount of the
stockholder's deficit is eliminated.
The increase of $5,290 in Convertible Debentures relates to the elimination
of unamortized issuance discount.
In addition, the minority interest in other partnerships of Insignia of
$66,216 will be eliminated upon the IPT Merger.
(G) Represents the issuance of 7,690,784 OP Units to AIMCO and the concurrent
issuance of 7,690,784 shares of AIMCO Common Stock to Insignia
stockholders, in exchange for all the shares of Insignia Common Stock.
In accordance with the Merger Agreement, AIMCO will issue a number of
shares of AIMCO Class E Preferred Stock approximately equal to $303 million
divided by the AIMCO Index Price, provided that the AIMCO stockholders
approve the Merger. Each share of AIMCO Class E Preferred Stock will
automatically convert to one share of AIMCO Common Stock upon the payment
of the Special Dividend. As such, for the purpose of preparing the pro
forma financial statements, AIMCO's management believes that the AIMCO
Class E Preferred Stock is substantially the same as AIMCO Common Stock,
and that the fair value of the AIMCO Class E Preferred Stock approximates
the fair value of the AIMCO Common Stock. Upon the payment of the Special
Dividend and the conversion of the AIMCO Class E Preferred Stock to AIMCO
Common Stock, the former Insignia stockholders will own approximately 13.8%
of the AIMCO Common Stock. The Special Dividend is intended to represent a
distribution in an amount at least equal to the earnings and profits of
Insignia at the time of the Insignia Merger, to which AIMCO succeeds.
In the event that the AIMCO stockholders do not approve the Merger, AIMCO
will issue a number of shares of AIMCO Class E Preferred Stock
approximately equal to $203 million divided by the AIMCO Index Price, and a
number of shares of AIMCO Class F Preferred Stock approximately equal to
$100 million divided by the AIMCO Index Price. The terms and rights of the
AIMCO Class E Preferred Stock are the same as those stated above. The
holders of the AIMCO Class F Preferred Stock will be entitled to receive
the greater of (i) the same dividends as holders of AIMCO Common Stock and
(ii) preferred cash dividends of 10% of the liquidation value of the AIMCO
Class F Preferred Stock, with the preferred dividend rate escalating by 1%
each year until a 15% dividend rate is achieved. AIMCO's management
believes that the preferred dividend will compensate the holders of the
AIMCO Class F Preferred Stock for the lack of convertibility to AIMCO
Common Stock, the lack of voting rights, and the uncertainty as to the
liquidity of the AIMCO Class F Preferred Stock. For the purpose of
preparing the pro forma financial statements, AIMCO's management believes
that the fair value of the AIMCO Class F Preferred Stock approximates the
fair value of the AIMCO Common Stock.
The AIMCO Index Price will be the average market price of AIMCO Common
Stock during the 20 NYSE trading days ending five business days prior to
the Merger, subject to a maximum average price of $38.00 per share. The
AIMCO Index Price is not intended to and will not necessarily represent the
fair market value of the AIMCO Class E Preferred Stock or the AIMCO Class F
Preferred Stock.
Concurrent with the issuance of Class E Preferred Stock or Class F
Preferred Stock, the Partnership will issue comparable Class E Preferred
Units or Class F Preferred Units to AIMCO. The Class E Preferred Units and
Class F Preferred Units will have terms substantially the same as Class E
Preferred Stock and Class F Preferred Stock, respectively.
F-79
<PAGE> 169
(H) Represents the increase in the Partnership's investment in Unconsolidated
Subsidiaries to reflect the contribution of property management contracts,
including the related deferred tax liability, and notes payable to the
Unconsolidated Subsidiaries. These assets and liabilities are valued at the
Partnership's new basis resulting from the allocation of the purchase price
of Insignia.
(I) Represents certain assets and liabilities of Insignia, primarily related to
the management operations of Insignia, contributed by the Partnership to
the Unconsolidated Subsidiaries, valued at the Partnership's new basis
resulting from the allocation of the purchase price of Insignia.
(J) Amount represents notes receivable from the Unconsolidated Subsidiaries of
$50,000, advances to the Unconsolidated Subsidiaries of $18,933, and equity
in the Unconsolidated Subsidiaries of $53,733. The combined pro forma
balance sheet (Insignia Merger) of the Unconsolidated Subsidiaries as of
June 30, 1998 is presented below, which reflects the effects of the
Insignia Merger, the IPT Merger and the Insignia Reorganization as if such
transactions had occurred as of June 30, 1998.
F-80
<PAGE> 170
UNCONSOLIDATED SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET (INSIGNIA MERGER)
AS OF JUNE 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRE-MERGER INSIGNIA AIMCO
PRO FORMA(i) REORGANIZATION(ii) PRO FORMA
------------ ------------------ ---------
<S> <C> <C> <C>
ASSETS
Real estate........................................... $ 21,727 $ -- $ 21,727
Cash and cash equivalents............................. 5,627 15,102(iii) 20,729
Restricted cash....................................... 5,010 -- 5,010
Management contracts.................................. 50,320 77,410(iv) 127,730
Accounts receivable................................... -- 23,773(iii) 23,773
Deferred financing costs.............................. 3,217 -- 3,217
Goodwill.............................................. 44,252 -- 44,252
Other assets.......................................... 21,020 8,954(iii) 29,974
-------- -------- --------
$151,173 $125,239 $276,412
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Secured notes payable................................. $ 72,037 $ -- $ 72,037
Secured short-term financing.......................... -- 50,000(iv) 50,000
Accounts payable, accrued and other liabilities....... 41,761 44,931(iii) 86,692
Security deposits and deferred income................. 316 2,898(iii) 3,214
Deferred tax liability................................ -- 12,849(iv) 12,849
-------- -------- --------
114,114 110,678 224,792
Common stock.......................................... 2,319 766(v) 3,085
Preferred stock....................................... 39,172 14,561(iv) 53,733
Retained earnings..................................... (4,174) -- (4,174)
Notes receivable on common stock purchases............ (258) (766)(v) (1,024)
-------- -------- --------
37,059 14,561 51,620
-------- -------- --------
$151,173 $125,239 $276,412
======== ======== ========
</TABLE>
- ---------------
(i) Represents the Unconsolidated Subsidiaries pro forma consolidated financial
position after giving effect to the Ambassador Merger. See "Pro Forma
Financial Information (Pre-Insignia Merger)."
(ii) Represents adjustments related to the Insignia Reorganization, whereby,
following the Insignia Merger, the Partnership will contribute to the
combined Unconsolidated Subsidiaries certain assets and liabilities of
Insignia, primarily related to the management operations owned by Insignia.
The adjustments reflect the transfer of assets valued at the Partnership's
new basis resulting from the allocation of the purchase price of Insignia.
The Partnership will receive non-voting preferred stock as consideration in
exchange for the net assets contributed. The net deferred tax liability is
assumed by the Unconsolidated Subsidiaries as it resulted from the assets
and liabilities transferred to the Unconsolidated Subsidiaries.
(iii)Represents certain assets and liabilities of Insignia, primarily related to
the management operations of Insignia, contributed by the Partnership to
the Unconsolidated Subsidiaries, valued at the Partnership's new basis
resulting from the allocation of the purchase price of Insignia.
(iv) Represents the transfer of management contracts, and the establishment of
the related estimated net deferred Federal and state tax liabilities at a
combined rate of 40% for the estimated difference between the book and tax
basis of the net assets of the Unconsolidated Subsidiaries. The primary
component of the deferred tax liability is the difference between the new
basis of the property management contracts, as a result of the allocation
of the purchase price of Insignia, and the historical tax basis.
(v) Represents the issuance of common stock to the common stockholders of the
Unconsolidated Subsidiaries in exchange for notes receivable, in order for
the common stockholders to maintain their respective ownership interest in
the Unconsolidated Subsidiaries.
F-81
<PAGE> 171
AIMCO PROPERTIES, L.P.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER)
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER UNIT DATA)
<TABLE>
<CAPTION>
INSIGNIA
PRE-MERGER INSIGNIA AS MERGER INSIGNIA
PRO FORMA ADJUSTED ADJUSTMENTS REORGANIZATION INSIGNIA
(A) (B) (C) ADJUSTMENTS(D) PRO FORMA
---------- ----------- ----------- -------------- ---------
<S> <C> <C> <C> <C> <C>
Rental and other property revenues..................... $ 395,290 $ 6,912 $ -- $ -- $ 402,202
Property operating expenses............................ (165,859) (3,307) -- -- (169,166)
Owned property management expense...................... (10,412) -- -- -- (10,412)
Depreciation........................................... (84,959) (966) (1,321)(E) -- (87,246)
--------- -------- -------- -------- ---------
Income from property operations........................ 134,060 2,639 (1,321) -- 135,378
--------- -------- -------- -------- ---------
Management fees and other income....................... 21,750 94,330 -- (74,404)(K) 41,676
Management and other expenses.......................... (15,304) (57,615) -- 49,236(K) (23,683)
Corporate overhead allocation.......................... (588) -- -- -- (588)
Amortization........................................... (7,201) (16,768) (25,616)(F) 28,922(L) (20,663)
--------- -------- -------- -------- ---------
Income from service company business................... (1,343) 19,947 (25,616) 3,754 (3,258)
Minority interest in service company business.......... (10) -- -- -- (10)
--------- -------- -------- -------- ---------
Partnership's share of income from service company
business............................................. (1,353) 19,947 (25,616) 3,754 (3,268)
--------- -------- -------- -------- ---------
General and administrative expenses.................... (6,421) (21,199) -- 6,392(K) (21,228)
Interest expense....................................... (85,681) (9,035) (15,899)(G) 3,725(K) (106,890)(N)
Interest income........................................ 10,576 10,967 -- -- 21,543
Minority interest...................................... 1,657 (12,871) 1,170(H) -- (10,044)(O)
Equity in income (losses) of unconsolidated
partnerships......................................... (10,057) 12,515 (25,357)(I) -- (22,899)
Equity in earnings of Unconsolidated Subsidiaries...... 10,426 -- -- (8,082)(M) 2,344(Q)
--------- -------- -------- -------- ---------
Income (loss) from operations.......................... 53,207 2,963 (67,023) 5,789 (5,064)
Gain on sale of property............................... -- 80 (80) -- --
Income tax provision................................... -- 1,701 (1,701)(J) -- --
--------- -------- -------- -------- ---------
Net income (loss)...................................... 53,207 4,744 (68,804) 5,789 (5,064)
Income (loss) allocable to Preferred Unitholders....... 34,174 -- -- -- 34,174(P)
--------- -------- -------- -------- ---------
Income (loss) allocable to OP Unitholders.............. $ 19,033 $ 4,744 $(68,804) $ 5,789 $ (39,238)(N)
========= ======== ======== ======== =========
Basic earnings (loss) per Op Unit...................... $ 0.36 $ (0.64)(N)
========= =========
Diluted earnings (loss) per Op Unit.................... $ 0.35 $ (0.64)(N)
========= =========
Weighted average OP Units outstanding.................. 53,307 60,998
========= =========
Weighted average OP Units and equivalents
outstanding.......................................... 53,688 61,842
========= =========
</TABLE>
- ---------------
(A) Represents the Partnership's pro forma consolidated statement of operations
for the year ended December 31, 1997, which gives effect to (i) the 1997
Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions;
(iv) the 1998 Stock Offerings; (v) the 1998 Acquisitions; (vi) the 1998
Disposition; (vii) the NHP Real Estate Companies Purchase; (viii) the NHP
Merger; (ix) the NHP Reorganization; and (x) the Ambassador Merger, as if
these transactions had occurred on January 1, 1997. See "Pro Forma
Financial Information (Pre-Insignia Merger)."
F-82
<PAGE> 172
(B) Represents adjustments to reflect the operations of Insignia, the IPT-AMIT
Merger, and the Distribution, as if these transactions had occurred on
January 1, 1997. These adjustments are detailed, as follows:
<TABLE>
<CAPTION>
INSIGNIA IPT-AMIT HOLDINGS INSIGNIA
HISTORICAL(i) MERGER(ii) DISTRIBUTION(iii) AS ADJUSTED
------------- ---------- ----------------- -----------
<S> <C> <C> <C> <C>
Rental and other property revenues......................... $ 6,646 $ 266 $ -- $ 6,912
Property operating expenses................................ (3,251) (56) -- (3,307)
Owned property management expense.......................... -- -- -- --
Depreciation............................................... (966) -- -- (966)
--------- ------- --------- --------
Income from property operations............................ 2,429 210 -- 2,639
--------- ------- --------- --------
Management fees and other income........................... 389,626 -- (295,296) 94,330
Management and other expenses.............................. (315,653) -- 258,038 (57,615)
Corporate overhead allocation.............................. -- -- -- --
Amortization............................................... (31,709) (303) 15,244 (16,768)
--------- ------- --------- --------
Income from service company business....................... 42,264 (303) (22,014) 19,947
Minority interest in service company business.............. -- -- -- --
--------- ------- --------- --------
Company's share of income from service company business.... 42,264 (303) (22,014) 19,947
--------- ------- --------- --------
General and administrative expenses........................ (20,435) (1,351) 587 (21,199)
Interest expense........................................... (9,353) -- 318 (9,035)
Interest income............................................ 4,571 6,853 (457) 10,967
Minority interest.......................................... (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
Gain on sale of property................................... -- 80 -- 80
Income tax provision....................................... (6,822) (180) 8,703 1,701
--------- ------- --------- --------
Net income (loss).......................................... 10,233 7,566 (13,055) 4,744
Income (loss) allocable to Preferred Unitholders........... -- -- -- --
--------- ------- --------- --------
Income (loss)allocable to OP Unitholders................... $ 10,233 $ 7,566 $ (13,055) $ 4,744
========= ======= ========= ========
</TABLE>
- ---------------
(i) Represents the audited consolidated results of operations of Insignia for
the year ended December 31, 1997, as reported in Insignia's Annual Report
on Form 10-K. Certain reclassifications have been made to Insignia's
historical statement of operations to conform to 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 IPT-AMIT Merger. The IPT-AMIT Merger is
expected to close prior to the Insignia Merger.
(iii)Represents the distribution of two shares of Holdings Common Stock for each
three shares of Insignia Common Stock to holders of Insignia Common Stock.
(C) Represents the following adjustments occurring as a result of the Insignia
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 Insignia Merger; (iii) the increase in
interest expense resulting from the net increase in debt; (iv) the
elimination of the income tax provision; and (v) the elimination of the
minority interest associated with IPT.
(D) Represents adjustments related to the Insignia Reorganization, whereby,
following the Insignia Merger, the Partnership will contribute to the
Unconsolidated Subsidiaries certain assets and liabilities of Insignia,
primarily management contracts and related working capital assets and
liabilities related to Insignia's third-party management operations. The
adjustments reflect the related revenues and expenses primarily related to
the management operations owned by Insignia, with additional amortization
recorded related to the Partnership's new basis resulting from the
allocation of the purchase price of Insignia.
(E) Represents incremental depreciation related to the consolidated real estate
assets purchased in connection with the Insignia Merger, based on the
Partnership's new basis resulting from the allocation
F-83
<PAGE> 173
of the purchase price of Insignia. Buildings and improvements are
depreciated on the straight-line method over a period of 20 years, and
furniture and fixtures are depreciated on the straight-line method over a
period of 5 years.
(F) Represents incremental depreciation and amortization of the tangible and
intangible assets related to the property management business of Insignia,
based on the Partnership's new basis resulting from the allocation of the
purchase price of Insignia, including amortization of property management
contracts of $37,350, amortization of goodwill of $1,612 and depreciation
of furniture, fixtures, and equipment of $3,119, less Insignia's historical
depreciation and amortization of $16,465. Property management contracts are
amortized using the straight-line method over a period of three years.
Furniture, fixtures, and equipment are depreciated using the straight-line
method over a period of three years. Goodwill is amortized using the
straight-line method over 20 years. The allocation of the purchase price of
Insignia is preliminary; therefore the amount and life of goodwill are
subject to change as additional information is obtained and the purchase
price allocation is finalized.
(G) Represents the increase in interest expense of $3,725 related to borrowings
to pay a distribution equal to the Special Dividend to holders of the Class
E Preferred Units; $11,324 related to borrowings of $152 million to
consummate the IPT Merger; and (iii) $850 related to borrowings of $11,434
for the additional liabilities of Insignia assumed by the Partnership. The
interest rate used in the calculation of interest expense was LIBOR plus
1.75%.
(H) Represents elimination of minority interest in IPT resulting from the IPT
Merger.
(I) Represents amortization related to the increased basis in investment in
real estate partnerships, as a result of the allocation of the purchase
price of Insignia, based on an estimated average life of 20 years, and
based on the Partnership's new basis resulting from the allocation of the
purchase price of Insignia.
(J) Represents the reversal of Insignia's income tax provision.
(K) Represents the historical income and expenses associated with certain
assets and liabilities of Insignia that will be contributed to the
Unconsolidated Subsidiaries, primarily related to the management operations
of Insignia.
(L) Represents the depreciation and amortization of certain management
contracts and furniture, fixtures, and equipment that will be contributed
to the Unconsolidated Subsidiaries, primarily related to the management
operations of Insignia, based on the Partnership's new basis resulting from
the allocation of the purchase price of Insignia.
(M) Represents the Partnership's equity in earnings of the Unconsolidated
Subsidiaries.
(N) The following table presents the net impact to pro forma net loss
applicable to holders of OP Units and net loss per OP Unit assuming the
interest rate per annum increases by 0.25%:
<TABLE>
<S> <C>
Increase in interest expense.............................. $ 1,232
========
Net loss.................................................. $ (6,296)
========
Net loss attributable to OP Unitholders................... $(40,470)
========
Basic loss per OP Unit.................................... $ (0.66)
========
Diluted loss per OP Unit.................................. $ (0.66)
========
</TABLE>
(O) This amount includes distributions of $10,003 related to be Convertible
Debentures. The holders of the Convertible Debentures have the right to
convert each debenture into 1.8868 shares of Insignia Common Stock. In the
event that all of the holders of the $149,500 principal amount of
Convertible Debentures converted to Insignia Common Stock prior to the
Merger, the total number of Class E Preferred Units and Class F Preferred
Units issued in connection with the Merger would be approximately equal to
$452,500 ($303,000 for outstanding Insignia Common Stock and $149,500 for
the conversion of the debentures) divided by the AIMCO Index Price. If the
conversion were to occur, the net loss attributable to OP Unitholders would
decrease to $(29,235) and the net loss per OP Unit would decrease to
$(0.45).
F-84
<PAGE> 174
(P) Represents the net income attributable to holders of the Class B Preferred
Units, the Class C Preferred Units, Class D Preferred Units, the Class G
Preferred Units, and the Class H Preferred Units as if these Preferred
Units had been issued as of January 1, 1997. In the event the AIMCO
stockholders do not approve the Insignia Merger, AIMCO will issue a number
of shares of AIMCO Class F Preferred Stock approximately equal to $100
million divided by the AIMCO Index Price, which will be contributed by
AIMCO to the partnership in exchange for Class F Preferred Units. The
holders of the Class F Preferred Units will be entitled to receive the
greater of (i) the same distributions as holders of OP Units and (ii)
preferred cash distributions of 10% of the liquidation value of the Class F
Preferred Units, with the preferred distribution rate escalating by 1% each
year until a 15% distribution rate is achieved. If the Class F Preferred
Units are issued, distributions attributable to the holders of the Class F
Preferred Units will be $10,000 for 1997, the net loss attributable to OP
Unitholders will increase to $(49,238) and the net loss per OP Unit will
increase to $(0.84).
(Q) Represents the Partnership's equity in losses in the Unconsolidated
Subsidiaries of $(2,406), offset by the elimination of intercompany
interest expense of $4,750. The combined Pro Forma Statement of Operations
of the Unconsolidated Subsidiaries for the year ended December 31, 1997 is
presented below, which represents the effects of the NHP Merger, the NHP
Reorganization, the Ambassador Merger, the Insignia Merger, the IPT Merger
and the Insignia Reorganization as if these transactions had occurred as of
January 1, 1997.
F-85
<PAGE> 175
UNCONSOLIDATED SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER)
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER UNIT DATA)
<TABLE>
<CAPTION>
PRE-MERGER INSIGNIA AIMCO
PRO FORMA(i) REORGANIZATION(ii) PRO FORMA
------------ ------------------ ---------
<S> <C> <C> <C>
Rental and other property revenues................ $ 12,565 $ -- $ 12,565
Property operating expenses....................... (6,886) -- (6,886)
Owned property management expense................. (625) -- (625)
Depreciation...................................... (1,805) -- (1,805)
-------- -------- --------
Income from property operations................... 3,249 -- 3,249
-------- -------- --------
Management fees and other income.................. 65,768 74,404(iii) 140,172
Management and other expenses..................... (32,136) (49,236)(iii) (81,372)
Amortization...................................... (7,743) (28,922)(iv) (36,665)
-------- -------- --------
Income from service company business.............. 25,889 (3,754) 22,135
-------- -------- --------
General and administrative expenses............... (6,573) (6,392)(iii) (12,965)
Interest expense.................................. (11,907) (3,725)(iii) (15,632)
Interest income................................... 853 -- 853
Minority interest................................. (621) -- (621)
-------- -------- --------
Income (loss) from operations..................... 10,890 (13,871) (2,981)
Income tax provision.............................. (4,915) 5,364(v) 449
-------- -------- --------
Net income (loss)................................. $ 5,975 $ (8,507) $ (2,532)
======== ======== ========
Income (loss) allocable to preferred
stockholders.................................... $ 5,676 $ (8,082) $ (2,406)
======== ======== ========
Income (loss) allocable to common stockholders.... $ 299 $ (425) $ (126)
======== ======== ========
</TABLE>
- ---------------
(i) Represents the Unconsolidated Subsidiaries pro forma consolidated results
of operations after giving effect to the Ambassador Merger. See "Pro Forma
Financial Information (Pre-Insignia Merger)."
(ii) Represents adjustments related to the Insignia Reorganization, whereby,
following the Insignia Merger, the Partnership will contribute to the
Unconsolidated Subsidiaries certain assets and liabilities of Insignia,
primarily related to the management operations owned by Insignia. The
adjustments reflect the related revenues and expenses primarily related to
the management operations owned by Insignia, with additional amortization
recorded related to the Partnership's new basis resulting from the
allocation of the purchase price of Insignia.
(iii)Represents the historical income and expenses associated with certain
assets and liabilities of Insignia that were contributed to the
Unconsolidated Subsidiaries, primarily related to the management operations
of Insignia.
(iv) Represents the depreciation and amortization of certain management
contracts and furniture, fixtures, and equipment that will be contributed
to the Unconsolidated Subsidiaries, primarily related to the management
operations of Insignia, based on the Partnership's new basis resulting from
the allocation of the purchase price of Insignia.
(v) Represents the estimated Federal and state tax provisions, which are
calculated on the pro forma operating results of the Unconsolidated
Subsidiaries, excluding amortization of goodwill, which is not deductible
for tax purposes.
F-86
<PAGE> 176
AIMCO PROPERTIES, L.P.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER)
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
INSIGNIA INSIGNIA
PRE-MERGER INSIGNIA MERGER REORGANIZATION AIMCO
PRO FORMAS(A) AS ADJUSTED(B) ADJUSTMENTS(C) ADJUSTMENTS(D) PRO FORMA
------------- -------------- -------------- -------------- ---------
<S> <C> <C> <C> <C> <C>
Rental and other property revenues... $202,943 $ 3,988 $ -- $ -- $ 206,931
Property operating expenses.......... (77,089) (1,736) -- -- (78,825)
Owned property management expense.... (4,880) -- -- -- (4,880)
Depreciation......................... (44,468) (600) (660)(E) -- (45,728)
-------- -------- -------- -------- ---------
Income from property operations...... 76,506 1,652 (660) -- 77,498
-------- -------- -------- -------- ---------
Management fees and other income..... 9,562 47,635 -- (37,672)(L) 19,525
Management and other expenses........ (5,470) (27,585) -- 23,395(L) (9,660)
Corporate overhead allocation........ (196) -- -- -- (196)
Amortization......................... (3) (8,928) (12,164)(F) 14,461(M) (6,634)
-------- -------- -------- -------- ---------
Income from service company
business........................... 3,893 11,122 (12,164) 184 3,035
Minority interest in service company
business........................... (1) -- -- -- (1)
-------- -------- -------- -------- ---------
Partnership's share of income from
service company business........... 3,892 11,122 (12,164) 184 3,034
-------- -------- -------- -------- ---------
General and administrative
expenses........................... (4,103) (10,272) 4,937(G) 4,760(L) (4,678)
Interest expense..................... (41,730) (9,614) (7,885)(H) 1,847(L) (57,382)(O)
Interest income...................... 11,350 4,431 -- -- 15,781
Minority interest in other
partnerships....................... (516) (8,643) 3,056(I) -- (6,103)
Equity in losses of unconsolidated
partnerships....................... (4,752) 14,482 (9,295)(J) -- 435(P)
Equity in earnings of unconsolidated
subsidiaries....................... 5,609 -- -- (3,613)(N) 1,996(R)
Amortization of goodwill............. (3,394) -- -- -- (3,394)
-------- -------- -------- -------- ---------
Income (loss) from operations........ 42,862 3,158 (22,011) 3,178 27,187
Income tax provision................. -- (231) 231(K) -- --
-------- -------- -------- -------- ---------
Net income (loss).................... 42,862 2,927 (21,780) 3,178 27,187
Income attributable to Preferred
Unitholders........................ 17,004 -- -- 17,004(Q)
-------- -------- -------- -------- ---------
Income attributable to OP
Unitholders........................ $ 25,858 $ 2,927 $(21,780) $ 3,178 $ 10,183(O)
======== ======== ======== ======== =========
Basic earnings per OP Unit........... $ 0.48 $ 0.17(O)
======== =========
Diluted earnings per OP Unit......... $ 0.48 $ 0.16(O)
======== =========
Weighted average OP Units
outstanding........................ 53,922 61,614
======== =========
Weighted average OP Units and
equivalents outstanding............ 54,125 62,384
======== =========
</TABLE>
- ---------------
(A) Represents the Partnership's pro forma consolidated statement of operations
for the six months ended June 30, 1998, which gives effect to (i) the 1998
Stock Offerings; (ii) the 1998 Acquisitions; (iii) the 1998 Disposition;
and (iv) the Ambassador Merger, as if these transactions had occurred on
January 1, 1998. See "Pro Forma Financial Information (Pre-Insignia
Merger)."
F-87
<PAGE> 177
(B) Represents adjustments to reflect the operations of Insignia, including the
IPT-AMIT Merger, and the Distribution, as if these transactions had
occurred on January 1, 1997. These adjustments are detailed, as follows:
<TABLE>
<CAPTION>
INSIGNIA IPT-AMIT HOLDINGS INSIGNIA
HISTORICAL(i) MERGER(ii) DISTRIBUTION(iii) AS ADJUSTED
------------- ---------- ----------------- -----------
<S> <C> <C> <C> <C>
Rental and other property revenues.......................... $ 3,627 $ 361 $ -- $ 3,988
Property operating expenses................................. (1,736) -- -- (1,736)
Owned property management expense........................... -- -- -- --
Depreciation................................................ (600) -- -- (600)
--------- ------ --------- --------
Income from property operations............................. 1,291 361 -- 1,652
--------- ------ --------- --------
Management fees and other income............................ 274,749 -- (227,114) 47,635
Management and other expenses............................... (228,454) -- 200,869 (27,585)
Corporate overhead allocation............................... -- -- -- --
Amortization................................................ (20,021) (33) 11,126 (8,928)
--------- ------ --------- --------
Income from service company business........................ 26,274 (33) (15,119) 11,122
Minority interest in service company business............... -- -- -- --
--------- ------ --------- --------
Partnership's share of income from service company
business.................................................. 26,274 (33) (15,119) 11,122
--------- ------ --------- --------
General and administrative expenses......................... (13,116) (302) 3,146 (10,272)
Interest expense............................................ (10,320) -- 706 (9,614)
Interest income............................................. 2,878 2,618 (1,065) 4,431
Minority interest in other partnerships..................... (8,497) -- (146) (8,643)
Equity in losses of unconsolidated partnerships............. 13,624 -- 858 14,482
Equity in earnings of Unconsolidated Subsidiaries........... -- -- -- --
Amortization of goodwill.................................... -- -- -- --
--------- ------ --------- --------
Income (loss) from operations............................... 12,134 2,644 (11,620) 3,158
Income tax provision........................................ (5,460) -- 5,229 (231)
--------- ------ --------- --------
Net income (loss)........................................... 6,674 2,644 (6,391) 2,927
Income attributable to Preferred Unitholders................ -- -- --
--------- ------ --------- --------
Income attributable to OP Unitholders....................... $ 6,674 $2,644 $ (6,391) $ 2,927
========= ====== ========= ========
</TABLE>
- ---------------
(i) Represents the unaudited consolidated results of operations of Insignia for
the six months ended June 30, 1998, as reported in Insignia's Quarterly
Report on Form 10-Q. Certain reclassifications have been made to Insignia's
historical statement of operations to conform to 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 IPT-AMIT Merger. The IPT-AMIT Merger is
expected to close prior to the Insignia Merger.
(iii)Represents the distribution of two shares of Holdings Common Stock for each
three shares of Insignia Common Stock to holders of Insignia Common Stock.
Holdings will own all of Insignia's commercial real estate services,
Insignia's residential brokerage business, and Insignia's cooperative and
condominium management business.
(C) Represents the following adjustments occurring as a result of the Insignia
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 Insignia Merger; (iii) the increase in
interest expense resulting from the net increase in debt; (iv) the
elimination of the income tax provision; and (v) the elimination of the
minority interest associated with IPT.
(D) Represents adjustments related to the Insignia Reorganization, whereby,
following the Insignia Merger, the Partnership will contribute to the
Unconsolidated Subsidiaries certain assets and liabilities of Insignia,
primarily management contracts and related working capital assets and
liabilities related to Insignia's third-party management operations. The
adjustments reflect the related revenues and expenses primarily related to
the management operations owned by Insignia, with additional amortization
recorded related to the Partnership's new basis resulting from the
allocation of the purchase price of Insignia.
F-88
<PAGE> 178
(E) Represents incremental depreciation related to the consolidated real estate
assets purchased in connection with the Insignia Merger, based on the
Partnership's new basis resulting from the allocation of the purchase price
of Insignia. Buildings and improvements are depreciated on the
straight-line method over a period of 20 years, and furniture and fixtures
are depreciated on the straight-line method over a period of 5 years.
(F) Represents incremental depreciation and amortization of the tangible and
intangible assets related to the property management business of Insignia,
based on the Partnership's new basis resulting from the allocation of the
purchase price of Insignia, including amortization of property management
contracts of $18,674, amortization of goodwill of $826 and depreciation of
furniture, fixtures, and equipment of $1,559, less Insignia's historical
depreciation and amortization of $8,895. Property management contracts are
amortized using the straight-line method over a period of three years.
Furniture, fixtures, and equipment are depreciated using the straight-line
method over a period of three years. Goodwill is amortized using the
straight-line method over 20 years. The allocation of the purchase price of
Insignia is preliminary; therefore the amount and life of goodwill are
subject to change as additional information is obtained and the purchase
price allocation is finalized.
(G) Represents the elimination of merger related expenses recorded by Insignia
during the six months ended June 30, 1998. In connection with the Insignia
Merger, certain Insignia executives will receive one-time lump-sum payments
in connection with the termination of their employment and option
agreements. The total of these lump sum payments is estimated to be
approximately $50,000.
(H) Represents the increase in interest expense of $1,847 related to borrowings
to pay a distribution equal to the Special Dividend to holders of the Class
E Preferred Units; $5,615 related to borrowings of $152 million to
consummate the IPT Merger; and (iii) $423 related to borrowings of $11,434
for the additional liabilities of Insignia assumed by the Partnership. The
interest rate used in the calculation of interest expense was LIBOR plus
1.75%.
(I) Represents elimination of minority interest in IPT resulting from the IPT
Merger.
(J) Represents amortization related to the increased basis in investment in
real estate partnerships, as a result of the allocation of the purchase
price of Insignia, based on an estimated average life of 20 years, and
based on the Partnership's new basis resulting from the allocation of the
purchase price of Insignia.
(K) Represents the reversal of Insignia's income tax provision.
(L) Represents the historical income and expenses associated with certain
assets and liabilities of Insignia that will be contributed to the
Unconsolidated Subsidiaries, primarily related to the management operations
of Insignia.
(M) Represents the depreciation and amortization of certain management
contracts and furniture, fixtures, and equipment that will be contributed
to the Unconsolidated Subsidiaries, primarily related to the management
operations of Insignia, based on the Partnership's new basis resulting from
the allocation of the purchase price of Insignia.
(N) Represents the Partnership's equity in earnings of the Unconsolidated
Subsidiaries.
(O) The following table presents the net impact to pro forma net income
applicable to holders of OP Units and net income per OP Units assuming the
interest rate per annum increases by 0.25%:
<TABLE>
<S> <C>
Increase in interest expense............................... $ 611
=======
Net income................................................. $26,576
=======
Net income attributable to OP Unitholders.................. $ 9,572
=======
Basic income per OP Unit................................... $ 0.16
=======
Diluted income per OP Unit................................. $ 0.15
=======
</TABLE>
(P) This amount includes distributions of $5,012 related to the Convertible
Debentures. The holders of the Convertible Debentures have the right to
convert each debenture into 1.8868 shares of Insignia Common Stock. In the
event that all of the holders of $149,500 principal amount of Convertible
F-89
<PAGE> 179
Debentures converted to Insignia Common Stock prior to the Merger the total
number of Class E Preferred Units and Class F Preferred Units issued in
connection with the Merger would be approximately equal to $452,500
($303,000 for outstanding Insignia Common Stock and $149,500 for the
conversion of the debentures) divided by the AIMCO Index Price. If this
conversion were to occur, the net income attributable to OP Unitholders
would increase to $15,195 and the net income per OP Unit would increase to
$0.23.
(Q) 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 and the Class H Preferred Units as if these Preferred
Units had been issued as of January 1, 1997. In the event the AIMCO
stockholders do not approve the Insignia Merger, AIMCO will issue a number
of shares of AIMCO Class F Preferred Stock approximately equal to $100
million divided by the AIMCO Index Price, which will be contributed by
AIMCO to the Partnership in exchange for Class F Preferred Units. The
holders of the Class F Preferred Units will be entitled to receive the
greater of (i) the same distributions as holders of OP Units and (ii)
preferred cash distributions of 10% of the liquidation value of the Class F
Preferred Units, with the preferred distribution rate escalating by 1% each
year until a 15% distribution rate is achieved. If the Class F Preferred
Units are issued, distributions attributable to the holders of the Class F
Preferred Units will be $5,500 for the three months ended March 31, 1998,
the net income attributable to OP Unitholders will decrease to $4,683 and
the net income per OP Unit will decrease to $0.08.
(R) Represents the Partnership's equity in losses in the Unconsolidated
Subsidiaries of $(3,613). The combined Pro Forma Statement of Operations of
the Unconsolidated Subsidiaries for the six months ended June 30, 1998 is
presented below, which represents the effects of the Ambassador Merger, the
Insignia Merger, the IPT Merger and the Insignia Reorganization as if these
transactions had occurred as of January 1, 1997.
F-90
<PAGE> 180
UNCONSOLIDATED SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER)
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRE-MERGER INSIGNIA AIMCO
PRO FORMA(i) REORGANIZATION(ii) PRO FORMA
------------ ------------------ ---------
<S> <C> <C> <C>
Rental and other property revenues.................... $ 6,550 $ -- $ 6,550
Property operating expenses........................... (3,390) -- (3,390)
Owned property management expense .................... (230) -- (230)
Depreciation expense.................................. (650) -- (650)
-------- -------- --------
Income from property operations....................... 2,280 -- 2,280
-------- -------- --------
Management fees and other income...................... 37,585 37,672(iii) 75,257
Management and other expenses......................... (23,673) (23,395)(iii) (47,068)
Amortization.......................................... (1,390) (14,461)(iv) (15,851)
-------- -------- --------
Income from service company........................... 12,522 (184) 12,338
-------- -------- --------
General and administrative expense.................... -- (4,760)(iii) (4,760)
Interest expense...................................... (3,878) (1,847)(iii) (5,725)
Interest income....................................... 425 -- 425
Minority interest in other partnerships............... (250) -- (250)
-------- -------- --------
Income from operations................................ 11,099 (6,791) 4,308
Income tax provision.................................. (5,195) 2,988 (2,207)
-------- -------- --------
Net income............................................ $ 5,904 $ (3,803) $ 2,101
======== ======== ========
Income attributable to preferred stockholders......... $ 5,609 $ (3,613) $ 1,996
======== ======== ========
Income attributable to common stockholders............ $ 295 $ (190) $ 105
======== ======== ========
</TABLE>
- ---------------
(i) Represents the Unconsolidated Subsidiaries pro forma consolidated results
of operations after giving effect to the Ambassador Merger. See "Pro Forma
Financial Information (Pre-Insignia Merger)."
(ii) Represents adjustments related to the Insignia Reorganization, whereby,
following the Insignia Merger, the Partnership will contribute to the
Unconsolidated Subsidiaries certain assets and liabilities of Insignia,
primarily related to the management operations owned by Insignia. The
adjustments reflect the related revenues and expenses primarily related to
the management operations owned by Insignia, with additional amortization
recorded related to the Partnership's new basis resulting from the
allocation of the purchase price of Insignia.
(iii)Represents the historical income and expenses associated with certain
assets and liabilities of Insignia that were contributed to the
Unconsolidated Subsidiaries, primarily related to the management operations
of Insignia.
(iv) Represents the depreciation and amortization of certain management
contracts and furniture, fixtures, and equipment that will be contributed
to the Unconsolidated Subsidiaries, primarily related to the management
operations of Insignia, based on the Partnership's new basis resulting from
the allocation of the purchase price of Insignia.
(v) Represents the estimated Federal and state tax provisions, which are
calculated on the pro forma operating results of the Unconsolidated
Subsidiaries, excluding amortization of goodwill, which is not deductible
for tax purposes.
F-91
<PAGE> 181
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the Registrant has duly caused this registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized.
AIMCO Properties, L.P.
By: AIMCO-GP, Inc.
its General Partner
/s/ PETER K. KOMPANIEZ
------------------------------------
Date: September 4, 1998 By: Peter K. Kompaniez
Title: Vice Chairman and President
<PAGE> 182
EXHIBIT INDEX(1)
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
2.1 -- Amended and Restated Agreement and Plan of Merger, dated
as of May 26, 1998, by and among Apartment Investment and
Management Company, AIMCO Properties, L.P., Insignia
Financial Group, Inc., and Insignia/ESG Holdings, Inc.
(filed June 22, 1998, as Exhibit 2.1 to Amendment No. 2
to AIMCO's Current Report on Form 8-K, dated March 17,
1998 and incorporated herein by reference)
2.2 -- Agreement and Plan of Merger, dated as of April 21, 1997,
by and among Apartment Investment and Management Company,
AIMCO/NHP Acquisition Corp. and NHP Incorporated (filed
as Exhibit 2.1 to AIMCO's Current Report on Form 8-K,
dated April 16, 1997 and incorporated herein by
reference)
2.3 -- Stock Purchase Agreement, dated as of April 16, 1997, by
and among Apartment Investment and Management Company,
Demeter Holdings Corporation and Capricorn Investors,
L.P. (filed as Exhibit 2.2 to AIMCO's Current Report on
Form 8-K, dated April 16, 1997 and incorporated herein by
reference)
2.4 -- Agreement and Plan of Merger, dated as of December 23,
1997, by and between Apartment Investment and Management
Company and Ambassador Apartments, Inc. (filed as Exhibit
2.1 to AIMCO's Current Report on Form 8-K, dated December
23, 1997 and incorporated herein by reference)
10.1 -- Second Amended and Restated Agreement of Limited
Partnership of AIMCO Properties, L.P., dated as of July
29, 1994, among AIMCO-GP, Inc., as general partner,
AIMCO-LP, Inc., as special limited partner, and AIMCO-GP,
Inc., as attorney-in-fact for the limited partners (filed
as Exhibit 10.17 to AIMCO's Quarterly Report on Form 10-Q
for the quarterly period ending June 30, 1997 and
incorporated herein by reference)
10.2 -- First Amendment to the Second Amended and Restated
Agreement of Limited Partnership of AIMCO Properties,
L.P., dated as of July 29, 1997, by AIMCO-GP, Inc. (filed
as Exhibit 10.18 to AIMCO's Quarterly Report on Form 10-Q
for the quarterly period ending June 30, 1997 and
incorporated herein by reference)
10.3 -- Second Amendment to the Second Amended and Restated
Agreement of Limited Partnership of AIMCO Properties,
L.P., dated as of December 22, 1997 by AIMCO-GP, Inc.
(filed as Exhibit 10.35 to AIMCO's Annual Report on Form
10-K for the fiscal year 1997 and incorporated herein by
reference)
10.4 -- Third Amendment to the Second Amended and Restated
Agreement of Limited Partnership of AIMCO Properties,
L.P., dated as of February 19, 1998 by AIMCO-GP, Inc.
(filed as Exhibit 10.36 to AIMCO's Annual Report on Form
10-K for the fiscal year 1997 and incorporated herein by
reference)
10.5 -- Fourth Amendment to the Second Amended and Restated
Agreement of Limited Partnership of AIMCO Properties,
L.P., dated as of March 25, 1998, by AIMCO-GP, Inc.
(filed as Exhibit 10.9 to AIMCO's Quarterly Report on
Form 10-Q for the quarterly period ending March 31, 1998
and incorporated herein by reference)
10.6 -- Fifth Amendment, dated as of July 15, 1998, to the Second
Amended and Restated Agreement of Limited Partnership of
AIMCO Properties, L.P., dated as of July 29, 1994 (Filed
as Exhibit 10.6 to AIMCO's Quarterly Report on Form 10-Q
for the quarterly period ending June 30, 1998 and
incorporated herein by reference)
</TABLE>
<PAGE> 183
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.7 -- Sixth Amendment dated as of August 14, 1998 to the Second
Amended and Restated Agreement of Limited Partnership of
AIMCO Properties, L.P., dated as of July 29, 1994 (Filed
as Exhibit 10.7 to AIMCO's Quarterly Report on Form 10-Q
for the quarterly period ending June 30, 1998 and
incorporated herein by reference)
10.8 -- Apartment Investment and Management Company Non-Qualified
Employee Stock Option Plan, adopted August 29, 1996
(filed as Exhibit 10.8 to AIMCO's Quarterly Report on
Form 10-Q/A for the quarterly period ending September 30,
1996 and incorporated herein by reference)
10.9 -- Apartment Investment and Management Company 1996 Stock
Award and Incentive Plan, adopted April 25, 1996 (filed
as Exhibit 10.70 to AIMCO's Annual Report on Form 10-K
for the fiscal year 1996 and incorporated herein by
reference)
10.10 -- Summary of Arrangement for Sale of Stock to Executive
Officers (filed as Exhibit 10.104 to AIMCO's Annual
Report on Form 10-K for the fiscal year 1996 and
incorporated herein by reference)
10.11 -- Employment Contract executed on July 29, 1994 by and
between AIMCO Properties, L.P. and Peter Kompaniez (filed
as Exhibit 10.44a to AIMCO's Annual Report on Form 10-K
for the fiscal year 1994 and incorporated herein by
reference)
10.12 -- Employment Contract executed on July 29, 1994 by and
between AIMCO Properties, L.P. and Terry Considine (filed
as Exhibit 10.44c to AIMCO's Annual Report on Form 10-K
for the fiscal year 1994 and incorporated herein by
reference)
10.13 -- Employment Contract executed on July 29, 1994 by and
between AIMCO Properties, L.P. and Steven D. Ira (filed
as Exhibit 10.44d to AIMCO's Annual Report on Form 10-K
for the fiscal year 1994 and incorporated herein by
reference)
10.14 -- Contribution Agreement, dated as of January 31, 1998, by
and between Apartment Investment and Management Company
and Terry Considine and Peter K. Kompaniez (filed as
Exhibit 2.1 to AIMCO's Current Report on Form 8-K dated
January 31, 1998 and incorporated herein by reference)
10.15 -- Amendment No. 1 to the Apartment Investment and
Management Company 1997 Stock Award and Incentive Plan
(filed as Exhibit 10.12 to AIMCO's Quarterly Report on
Form 10-Q for the quarterly period ending March 31, 1998
and incorporated herein by reference)
10.16 -- Apartment Investment Management Company 1998 Incentive
Compensation Plan (filed as Exhibit 10.13 to AIMCO's
Quarterly Report on Form 10-Q for the quarterly period
ending March 31, 1998 and incorporated herein by
reference)
10.17 -- 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") (filed as Exhibit
99.3 to AIMCO's Current Report on Form 8-K, dated October
15, 1997 and incorporated herein by reference)
10.18 -- Letter Agreement, dated October 15, 1997, by and between
AIMCO Properties, L.P. and the Winthrop Sellers (filed as
Exhibit 99.6 to AIMCO's Current Report on Form 8-K, dated
October 15, 1997 and incorporated herein by reference)
10.19 -- Contribution Agreement and Joint Escrow Instructions,
dated as of January 1, 1996, by and between AIMCO
Properties, L.P. and Peachtree Park 94, L.P.(6) (filed as
Exhibit 10.1 to AIMCO's Current Report on Form 8-K, dated
January 1, 1996 and incorporated herein by reference)
</TABLE>
<PAGE> 184
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.20 -- Acquisition Agreement, dated as of April 30, 1996, by and
among the Company, AIMCO Somerset, Inc., AIMCO
Properties, L.P., Somerset REIT, Inc., RJ Holdings, Ltd.,
Somerset PAM Partnership and RJ Equities, Inc. (filed as
Exhibit 10.1 to AIMCO's Quarterly Report on Form 10-Q for
the quarterly period ending June 30, 1996 and
incorporated herein by reference)
10.21 -- 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 (filed
as Exhibit 2.1 to AIMCO's Current Report on Form 8-K
dated June 3, 1997 and incorporated herein by reference)
10.22 -- Credit Agreement (Unsecured Revolver-to-Term Facility),
dated January 26, 1998, by and among Bank of America
National Trust and Savings Association ("Bank of
America") and BankBoston, N.A. (filed as Exhibit 10.1 to
AIMCO's Quarterly Report on Form 10-Q for the quarterly
period ending March 31, 1998 and incorporated herein by
reference)
10.23 -- Payment Guaranty dated as of January 26, 1998, by
Apartment Investment and Management Company, AIMCO-GP,
Inc., AIMCO-LP, Inc., AIMCO Holdings, L.P., AIMCO
Holdings QRS, Inc., AIMCO Somerset, Inc., AIMCO
Properties Finance Corp., and AIMCO/OTC QRS, Inc. in
favor of Bank of America (filed as Exhibit 10.2 to
AIMCO's Quarterly Report on Form 10-Q for the quarterly
period ending March 31, 1998 and incorporated herein by
reference)
10.24 -- Payment Guaranty, dated as of January 26, 1998, by
Property Asset Management Services, L.P., NHP Management
Company, Property Asset Management
Services -- California, L.L.C. in favor of Bank of
America (filed as Exhibit 10.3 to AIMCO's Quarterly
Report on Form 10-Q for the quarterly period ending March
31, 1998 and incorporated herein by reference)
10.25 -- First Amendment to Credit Agreement, dated as of May 8,
1998, by and among AIMCO Properties, L.P., the financial
institutions listed on the signature pages thereof and
Bank of America (filed as Exhibit 10.4 to AIMCO's
Quarterly Report on Form 10-Q for the quarterly period
ending March 31, 1998 and incorporated herein by
reference)
10.26 -- Payment Guaranty, dated as of May 8, 1998, by Ambassador
II, L.P. in favor of Bank of America (filed as Exhibit
10.5 to AIMCO's Quarterly Report on Form 10-Q for the
quarterly period ending March 31, 1998 and incorporated
herein by reference)
10.27 -- Master Credit Facility Agreement, dated as of February 4,
1998, by and among Apartment Investment and Management
Company, AIMCO Properties, L.P., AIMCO/Bluffs, L.L.C.,
AIMCO Chesapeake, L.P., AIMCO Elm Creek, L.P., AIMCO
Lakehaven, L.P., AIMCO Los Arboles, L.P., and Washington
Mortgage Financial Group, Ltd. (filed as Exhibit 10.6 to
AIMCO's Quarterly Report on Form 10-Q for the quarterly
period ending March 31, 1998 and incorporated herein by
reference)
10.28 -- Guaranty, dated as of February 4, 1998, by Apartment
Investment and Management Company, for the benefit of
Washington Mortgage Financial Group, Ltd. (filed as
Exhibit 10.7 to AIMCO's Quarterly Report on Form 10-Q for
the quarterly period ending March 31, 1998 and
incorporated herein by reference)
</TABLE>
<PAGE> 185
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.29 -- Second Amendment to Credit Agreement, dated as of May 21,
1998, by and among AIMCO Properties, L.P., the financial
institutions listed on the signature pages thereof and
Bank of America (Filed as Exhibit 10.3 to AIMCO's
Quarterly Report on Form 10-Q for the quarterly period
ending June 30, 1998 and incorporated herein by
reference)
10.30 -- Payment Guaranty, dated as of May 21, 1998 by Ambassador
X, L.P. in favor of Bank of America (Filed as Exhibit
10.4 to AIMCO's Quarterly Report on Form 10-Q for the
quarterly period ending June 30, 1998 and incorporated
herein by reference)
10.31 -- Payment Guaranty, dated as of May 21, 1998, by Ambassador
I, Inc., Ambassador II, Inc., Ambassador IV, Inc.,
Ambassador V, Inc., Ambassador VI, Inc., Ambassador VII,
Inc., Ambassador VIII, Inc., Ambassador IX, Inc.,
Ambassador X, Inc., Ambassador XI, Inc., Ambassador XII,
Inc., Ambassador Florida Partners, Inc., A.J. One, Inc.,
and A.J., Two, Inc. in favor of Bank of America (Filed as
Exhibit 10.5 to AIMCO's Quarterly Report on Form 10-Q for
the quarterly period ending June 30, 1998 and
incorporated herein by reference)
10.32 -- Payment Guaranty, dated as of May 8, 1998, by AIMCO
Properties, L.P. for the benefit of Federal National
Mortgage Association (filed as Exhibit 10.8 to AIMCO's
Quarterly Report on Form 10-Q for the quarterly period
ending June 30, 1998 and incorporated herein by
reference)
10.33 -- Contribution and Management Agreement, dated as of June
15, 1998, by and between Apartment Investment and
Management Company and AIMCO Properties, L.P.
21.1 -- Subsidiaries of AIMCO Properties, L.P.
27.1 -- Financial Data Schedule -- as of and for the year ended
December 31, 1997
27.2 -- Financial Data Schedule -- as of and for the three months
ended March 31, 1998
27.3 -- Financial Data Schedule -- as of and for the six months
ended June 30, 1998
99.1 -- Agreement re: disclosure of long-term debt instruments
</TABLE>
- ---------------
(1) Schedules and supplemental materials to the exhibits have been omitted but
will be provided to the Securities and Exchange Commission upon request.
<PAGE> 1
EXHIBIT 10.33
CONTRIBUTION AND MANAGEMENT AGREEMENT
CONTRIBUTION AND MANAGEMENT AGREEMENT, dated as of June 15,
1998 (this "Agreement"), by and between Apartment Investment and Management
Company, a Maryland corporation ("AIMCO"), and AIMCO Properties, L.P., a
Delaware limited partnership (the "OP").
RECITALS
WHEREAS, pursuant to the Agreement of Limited Partnership of
the OP, AIMCO has previously agreed to certain restrictions on its ability to
conduct business other than through the OP;
WHEREAS, in order to maintain AIMCO's qualification as a real
estate investment trust under Section 856 of the Internal Revenue Code of 1986,
as amended (the "Code"), AIMCO has acquired, and may in the future acquire, an
interest in corporations with respect to which the OP does not own any interest
(each corporation in which AIMCO now owns or may hereafter acquire an interest
is referred to herein as a "QRS"); and
WHEREAS, AIMCO and the OP desire for the OP to acquire from
AIMCO the economic benefits of the assets owned by the QRS's, and for AIMCO to
grant the OP certain rights with respect to the management and operation of the
QRS's; and
WHEREAS, AIMCO and the OP have determined that it is desirable
and in their respective best interests to memorialize certain arrangements and
relationships.
NOW, THEREFORE, in consideration of the foregoing premises and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
AGREEMENT
1. Issuance of Securities to QRS. For each QRS now
owned or hereafter acquired by AIMCO, (a) if AIMCO acquired such QRS, in whole
or in part, for, or with the proceeds from the sale of, shares of AIMCO common
stock, the OP shall issue to such QRS a number of OP Partnership Common Units
("OP Units")
<PAGE> 2
equal to the number of such shares of AIMCO common stock, minus the number of
OP Units previously issued by the OP to such QRS or any of its subsidiaries,
and (b) if AIMCO acquired such QRS, in whole or in part, for securities issued
by AIMCO other than common stock, the OP shall issue to such QRS securities of
the OP equivalent to those issued by AIMCO, and (c) if AIMCO acquired such QRS,
in whole or in part, with the proceeds (whether comprised of cash or other
assets) of a loan from the OP to AIMCO, the OP shall issue to such QRS an
interest in the OP that (i) entitles the holder thereof to receive
distributions in amounts and at the same times as interest payments on such
loan (with appropriate reductions in such distributions if any portion of the
loan is repaid), (ii) entitles the holder thereof to receive, if and to the
extent that any portion of such loan is repaid, a number of OP Units equal to
the quotient obtained by dividing the principal amount of the loan repaid by
the market price of AIMCO common stock at the date of repayment (it being
understood and agreed that if the loan is repaid with funds contributed to such
QRS by AIMCO from the proceeds of a sale of AIMCO common stock, the market
price of AIMCO common stock at the date of repayment shall be deemed to be the
net price per share at which such shares were sold), and (iii) is automatically
redeemed for no consideration upon the repayment in full of such loan.
2. Contribution of Dividends and Other Payments. AIMCO
shall cause each QRS to pay to AIMCO, either directly or through other QRS's,
all dividends, distributions and other payments received by such QRS in respect
of any shares of capital stock, any partnership interest or any other property
or asset held by such QRS, including any proceeds from the sale, redemption or
other disposition for value of such shares of capital stock, partnership
interest or other property or asset, but excluding any distributions received in
respect of any interests in the OP (collectively, "QRS Proceeds"). AIMCO shall
contribute to the OP all QRS Proceeds received by it. AIMCO shall make such
contributions either directly or through one or more QRS's. AIMCO shall not
receive any consideration (including any additional partnership interests in the
OP) in exchange for such contributions.
3. Management and Operation of QRS-Controlled
Properties. With respect to each property now or hereafter controlled by a QRS
(each, a "Property"), whether controlled directly or indirectly through one or
more subsidiaries, AIMCO shall cause such QRS, and each of its subsidiaries,
to:
(a) engage or retain as a manager for such Property only
a person or entity that has been selected or approved by the OP, and only on
terms that have been approved by the OP;
2
<PAGE> 3
(b) at the request or direction of the OP, terminate the
manager of such Property;
(c) prohibit the termination of the manager of such
Property without the prior consent or approval of the OP;
(d) submit an annual operating budget for such Property
to the OP for its approval, and make any and all changes to such budget as may
be requested by the OP;
(e) submit to the OP for its approval all decisions with
respect to any expenditures at such Property that have not been provided for in
an annual operating budget previously approved by the OP; and
(f) prohibit the incurrence of any expense at such
Property that has not been approved by the OP.
4. Right of First Refusal. If AIMCO or any QRS proposes
to transfer, directly or indirectly, or refinance all or any part of its
interest in a QRS or any asset held by a QRS (other than OP Units and other
securities issued pursuant to Section 1 hereof), or is required by operation of
law or other involuntary transfer to do so, AIMCO shall, or shall cause such
QRS to, first offer the OP the opportunity to purchase (x) any or all of the
assets (other than any capital stock of another QRS, any OP Units or any other
securities issued pursuant to Section 1 hereof) directly or indirectly owned or
controlled by the QRS proposed to be transferred, or (y) any or all of the
assets (other than any capital stock of another QRS, any OP Units or any other
securities issued pursuant to Section 1 hereof) proposed to be transferred or
refinanced, in accordance with the following provisions:
(a) AIMCO shall provide notice ("Option Notice") to the
OP of the proposed transfer or refinancing and all of the terms thereof.
(b) Within thirty (30) days after the OP's receipt of the
Option Notice, the OP shall have the right, but not the obligation, to elect to
purchase (x) any or all of the assets (other than any capital stock of another
QRS, any OP Units or any other securities issued pursuant to Section 1 hereof)
directly or indirectly owned or controlled by the QRS proposed to be
transferred, or (y) any or all of the assets (other than any capital stock of
another QRS, any OP Units or any other securities issued pursuant to Section 1
hereof) proposed to be transferred or refinanced, in either case,
3
<PAGE> 4
for no additional consideration.
(c) If the OP elects to purchase any or all of such
assets, then the closing (the "Closing") of such purchase shall occur on a date
selected by the OP that is within ninety (90) days after the OP's receipt of
the Option Notice, and AIMCO and the OP shall execute such documents and
instruments and make such deliveries as may be reasonably required to
consummate such purchase.
(d) For a period of thirty (30) days commencing
immediately after the earlier to occur of (1) the Closing or, (2) if the OP
defaults in its obligation to effect the Closing, the date that is ninety (90)
days after the OP's receipt of the Option Notice, AIMCO may transfer any or all
of the QRS interest, or transfer or refinance any or all of the other assets,
as described in the Option Notice. If such QRS interest is not so transferred,
or such other assets are not so transferred or refinanced, AIMCO must give
notice in accordance with this Section 4 prior to any other or subsequent
transfer or refinancing of such QRS interest or other assets.
5. Assignment. This Agreement and all of the provisions
hereof shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and permitted assigns.
6. Amendment and Modification. Subject to applicable
law, this Agreement may be amended, modified, or supplemented only by written
agreement of AIMCO and the OP.
7. Severability. Each provision of this Agreement shall
be viewed as separate and divisible and if any provision of this Agreement
shall be held invalid or unenforceable, this Agreement shall be construed as
not containing such provisions, and the rights and obligations of the parties
hereto shall be construed and enforced accordingly.
8. Captions. The captions in this Agreement are for
convenience only, do not form a part hereof, and do not in any way modify,
interpret, or construe the intentions of the parties hereto.
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9. Execution; Counterparts. This Agreement may be
executed in multiple counterparts, each of which shall be an original, but
together shall constitute one and the same instrument.
10. Governing Law. This Agreement shall be governed by
and construed in accordance with the law of the State of Delaware applicable to
contracts made and enforced in such state.
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IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date and year first above written.
APARTMENT INVESTMENT AND
MANAGEMENT COMPANY
By: /s/ PETER K. KOMPANIEZ
----------------------------
Peter K. Kompaniez
President
AIMCO PROPERTIES, L.P.
By: AIMCO-GP, Inc.
By: /s/ PETER K. KOMPANIEZ
----------------------------
Peter K. Kompaniez
President
<PAGE> 1
EXHIBIT 21.1
AIMCO PROPERTIES, L.P.
LIST OF SUBSIDIARIES
1. 107-145 West 135th Street Associates Ltd Partnership (New York)
2. 630 East Lincoln Avenue Associates Ltd Partnership (New York)
3. 1133 Fifteenth Street Fourth Associates (Maryland)
4. 1133 Fifteenth Street Associates (District of Columbia)
5. 2900 Van Ness Associates (District of Columbia)
6. 7400 Roosevelt Investors (Pennsylvania)
7. Abbott Associates Ltd Partnership (New York)
8. Academy Gardens Associates LP
9. Adirondack Apartments Saranac Associates LP (New York)
10. AIMCO Atriums of Plantations, L.L.C. (Delaware)
11. AIMCO Anchorage, L.P. (Delaware)
12. AIMCO Arbor Station, L.P. (Delaware)
13. AIMCO Bay Club, L.P. (Delaware)
14. AIMCO Bay Club II, L.P. (Delaware)
15. AIMCO/Beacon Hill, L.L.C. (Delaware)
16. AIMCO/Beacon Hill, L.P. (Delaware)
17. AIMCO/Blossomtree L.L.C. (Delaware)
18. AIMCO/Blossomtree L.P. (Delaware)
19. AIMCO/Bluffs, L.L.C. (Delaware)
20. AIMCO/Boardwalk, L.P. (Delaware)
21. AIMCO/Boardwalk Finance, L.P. (Delaware)
22. AIMCO/Brandywine, L.P. (Delaware)
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23. AIMCO/Brant Rock, L.L.C. (Delaware)
24. AIMCO/Brant Rock, L.P. (Delaware)
25. AIMCO Breakers, L.P. (Delaware)
26. AIMCO Bridgewater, L.P. (Delaware)
27. AIMCO Brookside, L.L.C. (Delaware)
28. AIMCO Casa Anita, L.P. (Delaware)
29. AIMCO Chesapeake, L.P. (Delaware)
30. AIMCO Citrus Grove, L.P. (Delaware)
31. AIMCO Citrus Sunset, L.L.C. (Delaware)
32. AIMCO Cobble Creek, L.P. (Delaware)
33. AIMCO/Colonnade, L.L.C. (Delaware)
34. AIMCO/Colonnade, L.P. (Delaware)
35. AIMCO Colony, L.P. (Delaware)
36. AIMCO Copperfield, L.P. (Delaware)
37. AIMCO Crows Nest, L.P. (Delaware)
38. AIMCO/Easton Falls, L.P. (Delaware)
39. AIMCO Elm Creek, L.P. (Delaware)
40. AIMCO Fieldcrest, L.P. (Delaware)
41. AIMCO Fisherman's Landing, L.P. (Delaware)
42. AIMCO Fondren Court, L.P. (Delaware)
43. AIMCO/Foothills, L.L.C. (Delaware)
44. AIMCO/Foothills, L.P. (Delaware)
45. AIMCO/Fox Bay, L.L.C. (Delaware)
46. AIMCO/Fox Bay, L.P. (Delaware)
47. AIMCO Foxchase, L.P. (Delaware)
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48. AIMCO/Foxtree, L.L.C. (Delaware)
49. AIMCO/Foxtree, L.P. (Delaware)
50. AIMCO/Freedom Place, L.L.C. (Delaware)
51. AIMCO/Freedom Place, L.P. (Delaware)
52. AIMCO Galleria Office, L.P. (Delaware)
53. AIMCO Group, L.P. (Delaware)
54. AIMCO/Grovetree, L.L.C. (Delaware)
55. AIMCO/Grovetree, L.P. (Delaware)
56. AIMCO Hampton Hill, L.P. (Delaware)
57. AIMCO Hastings Green, L.P. (Delaware)
58. AIMCO Hastings Place, L.P. (Delaware)
59. AIMCO/Hazeltree, L.L.C. (Delaware)
60. AIMCO/Hazeltree, L.P. (Delaware)
61. AIMCO/Hiddentree, L.L.C. (Delaware)
62. AIMCO/Hiddentree, L.P. (Delaware)
63. AIMCO/HIL, L.L.C. (Delaware)
64. AIMCO Holdings, L.P. (Delaware)
65. AIMCO Hunters Glen, L.P. (Delaware)
66. AIMCO/Islandtree, L.L.C. (Delaware)
67. AIMCO/Islandtree, L.P. (Delaware)
68. AIMCO Lakehaven, L.P. (Delaware)
69. AIMCO Landmark, L.P. (Delaware)
70. AIMCO Los Arboles, L.P. (Delaware)
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71. AIMCO LT, L.P. (Delaware)
72. AIMCO/Montecito, L.P. (Delaware)
73. AIMCO/NHP Partners, L.P. (Delaware)
74. AIMCO/NHP Properties, Inc. (Delaware)
75. AIMCO/NHP Holdings, Inc. (Delaware)
76. AIMCO of Florida, Inc. (Florida)
77. AIMCO Oak Falls, L.P. (Delaware)
78. AIMCO Old Farm, L.L.C. (Delaware)
79. AIMCO/Olmos, L.L.C. (Delaware)
80. AIMCO/Olmos, L.P. (Delaware)
81. AIMCO/Orchidtree, L.L.C. (Delaware)
82. AIMCO/Orchidtree, L.P. (Delaware)
83. AIMCO/OTC, L.L.C. (Delaware)
84. AIMCO/OTC, L.P. (Delaware)
85. AIMCO/PAM Properties, L.P. (Delaware)
86. AIMCO Park at Cedar Lawn, L.P. (Delaware)
87. AIMCO Park Townhomes, L.P. (Delaware)
88. AIMCO/Penn Square, L.L.C. (Delaware)
89. AIMCO Peppermill Place, L.P. (Delaware)
90. AIMCO Pinebrook, L.P. (Delaware)
91. AIMCO Pines, L.P. (Delaware)
92. AIMCO/Pine Creek, L.L.C. (Delaware)
93. AIMCO/Pine Creek, L.P. (Delaware)
94. AIMCO/Polo Park, L.L.C. (Delaware)
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95. AIMCO/Polo Park, L.P. (Delaware)
96. AIMCO Properties Finance Partnership, L.P. (Delaware)
97. AIMCO Properties Holdings, L.L.C. (Delaware)
98. AIMCO/Quailtree, L.L.C. (Delaware)
99. AIMCO/Quailtree, L.P. (Delaware)
100. AIMCO/RALS, L.P. (Delaware)
101. AIMCO Recovery Fund, L.P. (Delaware)
102. AIMCO Rio Cancion, L.P. (Delaware)
103. AIMCO/Rivercrest, L.L.C. (Delaware)
104. AIMCO/Rivercrest, L.P. (Delaware)
105. AIMCO Royal Gardens, L.L.C. (Delaware)
106. AIMCO/SA, L.L.C. (Delaware)
107. AIMCO San Marina, L.P. (Delaware)
108. AIMCO/Sand Castles, L.L.C. (Delaware)
109. AIMCO/Sand Castles, L.P. (Delaware)
110. AIMCO/Sand Pebble, L.L.C. (Delaware)
111. AIMCO/Sand Pebble, L.P. (Delaware)
112. AIMCO Sandpiper, L.P. (Delaware)
113. AIMCO Seaside Point, L.P. (Delaware)
114. AIMCO/Shadetree, L.L.C. (Delaware)
115. AIMCO/Shadetree, L.P. (Delaware)
116. AIMCO/Shadow Lake, L.L.C. (Delaware)
117. AIMCO/Shadow Lake, L.P. (Delaware)
118. AIMCO Signature Point, L.P. (Delaware)
119. AIMCO/Silktree, L.L.C. (Delaware)
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120. AIMCO/Silktree, L.P. (Delaware)
121. AIMCO Steeplechase, L.P. (Delaware)
122. AIMCO/Stonegate, L.P. (Delaware)
123. AIMCO Sunbury, L.P. (Delaware)
124. AIMCO Sundown, L.P. (Delaware)
125. AIMCO Sunset Escondido, L.L.C. (Delaware)
126. AIMCO Sunset Village, L.L.C. (Delaware)
127. AIMCO/Surrey Oaks, L.L.C. (Delaware)
128. AIMCO/Surrey Oaks, L.P. (Delaware)
129. AIMCO/Tall Timbers, L.L.C. (Delaware)
130. AIMCO/Tall Timbers, L.P. (Delaware)
131. AIMCO/Teal Pointe, L.P. (Delaware)
132. AIMCO/The Hills, L.L.C. (Delaware)
133. AIMCO/The Hills, L.P. (Delaware)
134. AIMCO/Timbertree, L.L.C. (Delaware)
135. AIMCO/Timbertree, L.P. (Delaware)
136. AIMCO Township at Highlands, L.P. (Delaware)
137. AIMCO Tustin, L.P. (Delaware)
138. AIMCO/Twinbridge, L.L.C. (Delaware)
139. AIMCO/Twinbridge, L.P. (Delaware)
140. AIMCO UT, L.P. (Delaware)
141. AIMCO Villa Del Sol, L.L.C. (Delaware)
142. AIMCO Villa La Paz, L.P. (Delaware)
143. AIMCO/Villa Ladera, L.P. (Delaware)
144. AIMCO Weatherly, L.P. (Delaware)
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145. AIMCO West Trails, L.P. (Delaware)
146. AIMCO Westchase Midrise, L.P. (Delaware)
147. AIMCO/Wickertree, L.L.C. (Delaware)
148. AIMCO/Wickertree, L.P. (Delaware)
149. AIMCO/Wildflower, L.L.C. (Delaware)
150. AIMCO/Wildflower, L.P. (Delaware)
151. AIMCO/Williams Cove, L.P. (Delaware)
152. AIMCO Wimbledon Square, L.L.C. (Delaware)
153. AIMCO/Windsor Landing, L.L.C. (Delaware)
154. AIMCO/Windsor Landing, L.P. (Delaware)
155. AIMCO/Woodhollow, L.L.C. (Delaware)
156. AIMCO/Woodhollow, L.P. (Delaware)
157. AIMCO/Woodlands-Tyler, L.P. (Delaware)
158. AIMCO Woodway Offices, L.P. (Delaware)
159. AIMCO/Wydewood, L.L.C. (Delaware)
160. AIMCO/Wydewood, L.P. (Delaware)
161. AIMCO/Yorktree, L.L.C. (Delaware)
162. AIMCO/Yorktree, L.P. (Delaware)
163. AIV Properties, L.P. (Delaware)
164. AJ One, L.P. (Delaware)
165. AJ Two, L.P. (Delaware)
166. Algonquin Tower Ltd Partnership (Connecticut)
167. All Hallows Associates (District of Columbia)
168. Ambassador Apartments, L.P. (Delaware)
169. Ambassador I, L.P. (Illinois)
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170. Ambassador II, L.P. (Texas)
171. Ambassador III, L.P. (Delaware)
172. Ambassador IV, L.P. (Delaware)
173. Ambassador V, L.P. (Delaware)
174. Ambassador VI, L.P. (Delaware)
175. Ambassador VII, L.P. (Delaware)
176. Ambassador VIII, L.P. (Delaware)
177. Ambassador IX, L.P. (Delaware)
178. Ambassador X, L.P. (Delaware)
179. Ambassador XI, L.P. (Delaware)
180. Ambassador XII, L.P. (Delaware)
181. Ambassador CRM Florida Partners Limited Partnership (Delaware)
182. Ambassador Florida Partners Limited Partnership (Delaware)
183. Ambassador Texas Partners, L.P. (Delaware)
184. Anchorage Partners (Texas)
185. Anderson Mill Associates (Illinois)
186. Anglers Manor Associates LP (Illinois)
187. Antioch Apartments Ltd (Ohio)
188. Aptek Management Company LLC (Delaware)
189. Aptek Maintenance Services Company LLC (Delaware)
190. Arvada House Ltd Partnership (Colorado)
191. Aspen Stratford Apartments Company B (New Jersey)
192. Aspen Stratford Apartments Company C (New Jersey)
193. Athens Arms Associates (Georgia)
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194. Audobon Park Associates (New Jersey)
195. Baisley Park Associates LP (New York)
196. Balcor/Sportvest-II (Illinois)
197. Baldwin Oaks Elderly Ltd (New Jersey)
198. Baldwin Towers Associates (Pennsylvania)
199. Basswood Manor Ltd Partnership (Texas)
200. Bayview Hunters Point Apartments (District of Columbia)
201. Beautiful Village Associates LP Redevelopment Company (New York)
202. Benjamin Banneker Plaza Associates (Pennsylvania)
203. Bensalem Gardens Associates Ltd (Pennsylvania)
204. Bensalem Gardens Associates Ltd Partnership (Pennsylvania)
205. Benton Square Partnership (Missouri)
206. Berkley Ltd Partnership (Virginia)
207. Bloomsburg Elderly Associates (Pennsylvania)
208. Braesview Partnership (Texas)
209. Branchwood Towers Ltd Partnership (Maryland)
210. Briarwood Apartments (Arkansas)
211. Bridgewater Partners, Ltd. (Texas)
212. Brightwood Ltd Partnership (Virginia)
213. Brightwood Manor Associates (Pennsylvania)
214. Brinton Manor No. 1 Associates (Pennsylvania)
215. Brinton Towers Associates (Pennsylvania)
216. Broad Street Management, Inc. (Ohio)
217. Brookdale Lakes Partnership (Illinois)
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218. Brookside Apartments Associates (Pennsylvania)
219. Brookview Apartments Co Ltd (Alabama)
220. Brook Run Associates, L. P. (Illinois)
221. Brunswick Village Limited Partnership (New Jersey)
222. Buckingham Hall Associates Ltd Partnership (New York)
223. Buena Vista Apartments Ltd (Oklahoma)
224. Buffalo Village Associates (New York)
225. Cabell Associates of Lakeview (Virginia)
226. California Square II Ltd Partnership (Kentucky)
227. California Square Ltd Partnership (Kentucky)
228. Cambridge Heights Apartments Ltd (Mississippi)
229. Campbell Heights Associates Ltd Partnership (District of Columbia)
230. Canterbury Gardens Associates Ltd Partnership (Michigan)
231. Cape Cod Partnership (Texas)
232. Capital Park Limited Partnership (Ohio)
233. Caroline Arms Limited Partnership (Florida)
234. Caroline Associates I Ltd Partnership (Missouri)
235. Carter Associates Ltd Partnership (Massachusetts)
236. Casa del Mar Associates Limited Partnership (Florida)
237. Castle Rock Joint Venture (Texas)
238. CB L-2 C Associates (FL general partnership) (Florida)
239. CB L-2 B Associates (FL general partnership) (Florida)
240. CB Associates (FL general partnership)
241. Center Square Associates (Pennsylvania)
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242. Central Village Associates Ltd Partnership (Texas)
243. Chapel Housing Ltd Partnership (Maryland)
244. Chateau Gardens L.P. (California)
245. Cheek Road Ltd Partnership (North Carolina)
246. Chesterfield Housing Associates (South Carolina)
247. Cheyenne Village Apartments Ltd Partnership (Texas)
248. Christopher Court Housing Company Ltd Partnership (New York)
249. Churchview Gardens Ltd Partnership (Pennsylvania)
250. Citrus Park Associates Ltd (Florida)
251. Clay Courts Associates Ltd Partnership (Maryland)
252. Clear Lake Land Partners, Ltd. (Texas)
253. Clover Ridge East Ltd Partnership (Illinois)
254. College Heights Ltd Partnership (Mississippi)
255. College Park Associates (Pennsylvania)
256. College Park Associates Ltd Partnership (District of Columbia)
257. Colonial Terrace I Associates (Georgia)
258. Colonial Terrace II Associates (Georgia)
259. Colony Apartments Company Ltd (Alabama)
260. Columbus Square Associates I Ltd Partnership (Missouri)
261. Columbus Square Associates II Ltd Partnership (Missouri)
262. Community Circle II Ltd (Ohio)
263. Community Developers Of High Point Ltd Partnership (North Carolina)
264. Community Developers Of Princeville Ltd Partnership (North Carolina)
265. Concord Houses Associates (Massachusetts)
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266. Congress Park Associates II Ltd Partnership (District of Columbia)
267. Congress Park Associates Ltd Partnership (District of Columbia)
268. Congress Realty Companies Limited Partnership (Massachusetts)
269. Congress Management Company Limited Partnership (Massachusetts)
270. Connecticut Colony Associates (Georgia)
271. Copper Chase Associates (Illinois)
272. Copper Chase Partners (Illinois)
273. Copperfield Partners, Ltd. (Texas)
274. Copperwood II Ltd Partnership (Texas)
275. Copperwood Ltd Partnership (Texas)
276. Cottonwood Apartments (California)
277. Country Lake Associates Two Limited Partnership (Illinois)
278. Countrybrook Associates (Delaware)
279. Coventry Square Partners (Texas)
280. CRA Investors, Ltd. (Texas)
281. Crosland Housing Associates (South Carolina)
282. Crows Nest Partners, Ltd. (Texas)
283. Cumberland Court Associates (Pennsylvania)
284. Cypress Landing Associates (Illinois)
285. Cypress Landing Limited Partnership (Illinois)
286. Darby Townhouses Associates (Pennsylvania)
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287. Darbytown Development Associates LP (Virginia)
288. Delcar-S Ltd (Texas)
289. Delcar T Ltd Partnership (Texas)
290. Diakonia Associates (Rhode Island)
291. Dip Limited Partnership (Virginia)
292. Dip Limited Partnership II (Virginia)
293. Dip Limited Partnership III (Virginia)
294. Discovery Limited Partnership (Massachusetts)
295. Moral Gardens Associates (Pennsylvania)
296. Downing Apartments (Oklahoma)
297. Duke Manor Associates (Pennsylvania)
298. Duquesne Associates No. 1 (Pennsylvania)
299. Eagle's Nest Partnership (Texas)
300. East Hampton Ltd Partnership (Georgia)
301. East Windsor 255 Limited Partnership (Delaware)
302. Eastcourt Village Partners (Illinois)
303. Easton Terrace I Associates Ltd Partnership (Texas)
304. Easton Terrace II Associates Ltd Partnership (Texas)
305. Eastridge Apartments (Pennsylvania)
306. Edgewood II Associates (Georgia)
307. Edmond Estates Limited Partnership (Alabama)
308. Elden Limited Partnership (Virginia)
309. Elderly Housing Associates Ltd Partnership (Maryland)
310. Emory Grove Limited Partnership. (Maryland)
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311. English Manor Partners (Texas)
312. English Manor Joint Venture (Texas)
313. Esbro Limited Partnership (Arizona)
314. Eustis Apartments Ltd (Florida)
315. Everest Investors 5, L.L.C. (California)
316. Fairburn & Gordon Associates Phase I (Georgia)
317. Fairburn & Gordon Associates Phase II (Georgia)
318. Fairfax Associates (Virginia)
319. Fairmeadows Limited Partnership (Texas)
320. Fairmont #1 Ltd Partnership (District of Columbia)
321. Fairmont #2 Ltd Partnership (District of Columbia)
322. Fairview Homes Associates (New Jersey)
323. Fairwood Associates (District of Columbia)
324. Federal Square Village Ltd Partnership (Colorado)
325. Field Associates (Rhode Island)
326. First Alexandria Associates (Virginia)
327. Fisherman's Wharf Partners (Texas)
328. Flatbush Nsa Associates Ltd Partnership (New York)
329. The Fondren Court Joint Venture (Texas)
330. Fondren Court Partners, Ltd. (Texas)
331. Forest Apartments Associates (Michigan)
332. Forest Green Limited Partnership (Florida)
333. Forrester Gardens Ltd (Alabama)
334. Forst Park Elderly Associates Ltd Partnership (Missouri)
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335. Fort Carson Associates Ltd Partnership (Colorado)
336. Franklin Chapel Hill Associates (Pennsylvania)
337. Franklin Park Ltd Partnership (Pennsylvania)
338. Franklin Pine Ridge Associates (Pennsylvania)
339. Franklin Square School Associates Ltd Partnership (Maryland)
340. Franklin Victoria Associates I (Texas)
341. Friendset Housing Co Ltd Partnership (New York)
342. Frio Housing Ltd Partnership (Texas)
343. Galion Limited Partnership (Ohio)
344. Galleria Office Partners, Ltd. (Texas)
345. Garfield Hill Associates Ltd Partnership (District of Columbia)
346. Gate Manor Apartments Ltd (Tennessee)
347. Gates Mills I Limited Partnership (Ohio)
348. Gateway Village Associates (Michigan)
349. Genesee Gardens Associates Ltd Partnership (New York)
350. Gladys Hampton Homes Associates Ltd Partnership (New York)
351. G.P. Municipal Holdings, LLC (Delaware)
352. Golden Apartments I (Nevada)
353. Golden Apartments II (Nevada)
354. Grandview Apartments (Arkansas)
355. Greater Hartford Associates (Connecticut)
356. Greater Mt. Calvary Terrace Ltd (Georgia)
357. Greater Richmond Community Development Corp. #1 & Associates
(District of Columbia)
358. Greater Richmond Community Development Corp. #2 & Associates
(District of Columbia)
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359. Green Mountain Manor Ltd Partnership (Colorado)
360. Greenfield Apartments Ltd Partnership (Virginia)
361. Greenfield North Apartments Ltd Partnership (Virginia)
362. Greentree Associates (Illinois)
363. Griffith Limited Partnership (California)
364. Grosvenor House Associates Limited Partnership (Massachusetts)
365. Grove Park Villas, Ltd (Florida)
366. Guilford Company, Inc. (Alabama)
367. Gulfway Limited Partnership (Texas)
368. Gulfgate Partners, Ltd. (Texas)
369. GW Carver Ltd (Florida)
370. Haili Associates (Hawaii)
371. Haines Associates Ltd Partnership (Washington)
372. Hamilton House Associates (Florida)
373. Hampton Hill Partners (Texas)
374. Harold House Limited Partnership (Florida)
375. Harris Park Ltd Partnership (New York)
376. Hastings Place Partners (Texas)
377. Hastings Green Partners, Ltd. (Texas)
378. Hatillo Housing Associates (Massachusetts)
379. Heather Associates (Illinois)
380. Heights Associates Ltd Partnership (New York)
381. Hemingway Housing Associates Ltd Partnership (South Carolina)
382. Heritage Village Limited Partnership (Connecticut)
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383. Hickory Ridge Associates Ltd (Florida)
384. Highland Park Partners (Illinois)
385. Highlands Village II Ltd (Florida)
386. Hillcrest Green Apartments Ltd (Oklahoma)
387. Hillside Village Associates (Pennsylvania)
388. Hilltop Apartments Associates (Pennsylvania)
389. Hilltop Limited Partnership (North Carolina)
390. Hollows Associates Ltd Partnership (New York)
391. Hollywood Gardens (District of Columbia)
392. HomeCorp Investments, Ltd. (Alabama)
393. Housing Assistance Of Mt. Dora Ltd (Florida)
394. Housing Assistance Of Orange City Ltd (Florida)
395. Housing Assistance Of Vero Beach Ltd (Florida)
396. Housing Assistance Sebring Ltd (Florida)
397. Houston Aristocrat Apartments Ltd Partnership (Texas)
398. The Houston Recovery Fund (Texas)
399. HRH Properties, Ltd. (Ohio)
400. Hudson Terrace Associates Ltd Partnership (New York)
401. Hurbell I Limited Partnership (South Carolina)
402. Hurbell II Limited Partnership (South Carolina)
403. Hurbell III Ltd Partnership (North Carolina)
404. Hurbell IV Limited Partnership (Alabama)
405. IDA Tower (Pennsylvania)
406. Indian Valley I Limited Partnership (Ohio)
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407. Indian Valley II Limited Partnership (Ohio)
408. Indian Valley III Limited Partnership (Ohio)
409. Ingram Square Apartments Ltd (Texas)
410. Intown West Associates Ltd Partnership (Connecticut)
411. Ivanhoe Associates Limited Partnership (Pennsylvania)
412. Ivanhoe Corporation (Massachusetts)
413. Jamestown Village Associates (Pennsylvania)
414. Jersey Park Associates Ltd Partnership (Virginia)
415. JFK Associates (North Carolina)
416. Jupiter - I, L.P. (Delaware)
417. Jupiter - II, L.P. (Delaware)
418. JVL 18 Associates Ltd Partnership Verified (Missouri)
419. JVL 19 Associates Ltd Partnership Verified (Missouri)
420. JVL Limited Partnership (Missouri)
421. JVL Sixteen Limited Partnership (Missouri)
422. J.W. English Swiss Village Partners, Ltd. (Texas)
423. J.W. English, Camelot Apartments (Texas)
424. J.W. English, Fondren Court Partners (Texas)
425. Kapuna Associates (Hawaii)
426. Kennedy Homes Limited Partnership (Florida)
427. Kenneth Arms (District of Columbia)
428. Key Parkway West Associates (Massachusetts)
429. Kimberly Associates Limited Partnership (Maryland)
430. Kimberton Apartments Associates Limited Partnership (Delaware)
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431. King Bell Associates (Oregon)
432. Knollcrest Apartments Ltd Partnership (Tennessee)
433. Koolau Housing Associates (Hawaii)
434. LaJolla Partnership (Texas)
435. Lakehaven Associates One (Illinois)
436. Lakehaven Associates Two (Illinois)
437. La Salle Apartments (California)
438. La Vista Associates (District of Columbia)
439. Lafayette Manor Associates Ltd Partnership (Virginia)
440. Lafayette Towne Elderly Ltd Partnership (Missouri)
441. Lafayette Towne Family Ltd Partnership (Missouri)
442. Laing Village Ltd Partnership (South Carolina)
443. Lake Avenue Associates (Ohio)
444. Lake Forest Apartments (Pennsylvania)
445. Lake Wales Villas Ltd (Florida)
446. Lakeview Arms Associates Lts Partnership (New York)
447. Lakeview Villas Ltd (Florida)
448. Las Americas Housing Associates (Massachusetts)
449. Lassen Associates (District of Columbia)
450. Lee Hy Manor Associates Ltd Partnership (Virginia)
451. Lewisburg Associates (West Virginia)
452. Louisbourg Elderly Associates (Pennsylvania)
453. Lincmar Associates (California)
454. Lincoln Park Associates (Colorado)
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455. Linden Court Associates Ltd Partnership (New York)
456. Lock Haven Elderly Associates (Pennsylvania)
457. Lock Haven Gardens Associates (Pennsylvania)
458. Loring Towers Apartments Limited Partnership (Minnesota)
459. Loring Towers Associates (Massachusetts)
460. Loudoun House Ltd Partnership (Virginia)
461. Lyncstar Integrated Communications LLC (Colorado)
462. Lytle Place Community Urban Redevelopment Corp. (Ohio)
463. M&P Development Co. (Pennsylvania)
464. Manzanita Arms (District of Columbia)
465. Maple Hill Associates (Pennsylvania)
466. Maple Park West Ltd Partnership (Colorado)
467. Mayfair Manor Limited Partnership (Arizona)
468. McColl Housing Associates (South Carolina)
469. Meadowbrook Drive Limited Partnership (Illinois)
470. Meadows Limited Partnership (Illinois)
471. Meadowood Townhouses I Limited Partnership (Maryland)
472. Meadowood Townhouses III Limited Partnership (Maryland)
473. The Meadows Apartments (South Carolina)
474. Meadows Apartments Limited Partnership (Nevada)
475. Meadows East Apartments Limited Partnership (Nevada)
476. Menlo Limited Partnership (Arizona)
477. Merced Commons (District of Columbia)
478. Merced Commons II (District of Columbia)
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479. Mesa Ridge Partnership (Texas)
480. Mill Street Associates Ltd Partnership (Illinois)
481. Milliken Apartments Company (Massachusetts)
482. Miramar Housing Associates Ltd Partnership (District of Columbia)
483. Monaco Arms Associates I (Florida)
484. Monaco Arms Associates II Ltd (Florida)
485. Monmouth Associates Ltd Partnership (Washington)
486. Montblanc Gardens Apartments Associates (Massachusetts)
487. Montblanc Housing Associates (Massachusetts)
488. Monroeville Development Corporation (Massachusetts)
489. Monument Street Ltd Partnership (Maryland)
490. Morrisania Towers Housing Company Ltd Partnership (New York)
491. Morton Towers Expansion, L.P. (Delaware)
492. Morton Towers Apartments, L.P. (Delaware)
493. Moss Gardens Ltd, a Partnership in Commendam (Louisiana)
494. **MRR Ltd Partnership (Illinois)
495. Murphy Blair Associates III Associates Ltd Partnership (Missouri)
496. Muske Ltd Partnership (Michigan)
497. Natick Associates (Rhode Island)
498. The National Housing Partnership (District of Columbia)
499. National Housing Partnership Realty Fund IV (Maryland)
500. National Housing Partnership Realty Fund I (Maryland)
501. National Housing Partnership Realty Fund Two (Maryland)
502. National Housing Partnership Realty Fund III (Maryland)
21
<PAGE> 22
503. National Housing Partnership Realty Fund IV (Maryland)
504. Neighborhoods of The Universities Lock Street Apartments Company
(Illinois)
505. New West 111th Street Housing Company Ltd Partnership (New York)
506. New West 111th Street Two Associates Ltd Partnership (New York)
507. Newton Hill Limited Partnership (Ohio)
508. NHP A&R Services, Inc. (Virginia)
509. NHP Asset Management Services, Inc. (Virginia)
510. NHP Cash Management Services, Inc. (Virginia)
511. NHP/Congress Management Limited Partnership (Virginia)
512. NHP Equity Services, Inc. (Virginia)
513. NHP Financial Services, Ltd. (Delaware)
514. NHP Florida Management Company (Florida)
515. NHP-HDV Three, Inc. (Delaware)
516. NHP-HDV Ten, Inc. (Delaware)
517. NHP-HDV Eleven, Inc. (Delaware)
518. NHP-HDV Twelve, Inc. (Delaware)
519. NHP-HDV Fourteen, Inc. (Delaware)
520. NHP-HDV Fifteen, Inc. (Virginia)
521. NHP-HDV Sixteen, Inc. (Delaware)
522. NHP-HDV Seventeen, Inc. (Delaware)
523. NHP-HDV Eighteen, Inc. (Delaware)
524. NHP-HDV Nineteen, Inc. (Delaware)
525. NHP-HDV 20, Inc. (Virginia)
526. NHP-HG Six, Inc. (Virginia)
22
<PAGE> 23
527. NHP-HG 15, Inc. (Virginia)
528. NHP-HG 16, Inc. (Virginia)
529. NHP-HG 17, Inc. (Virginia)
530. NHP-HS Three, Inc. (Delaware)
531. NHP-HS Four, Inc. (Delaware)
532. NHP Maintenance Services Company (Delaware)
533. NHP Management Company (District of Columbia)
534. NHP Mid-Atlantic Partners One Limited Partnership (Delaware)
535. NHP Mid-Atlantic Partners Two Limited Partnership (Delaware)
536. NHP Mid-Atlantic Partners Three Limited Partnership (Delaware)
537. NHP Partners Two Limited Partnership (Delaware)
538. NHP/PRC Management Company LLC (Delaware)
539. NHP Puerto Rico Management Company (Delaware)
540. NHP Ridgewood Partners, L.P. (Delaware)
541. NHP Southeast Partners, L.P. (Delaware)
542. NHP Southwark HA, Inc. (Virginia)
543. NHP Texas Management Company (Texas)
544. Norco Associates (Pennsylvania)
545. North Lake Terrace Associates Ltd Partnership (Texas)
546. Northgate Village Limited Partnership (Georgia)
547. Northwest Terrace Associates Ltd Partnership (Texas)
548. Oak Falls Partners (Texas)
549. Oak Hollow South Associates (Pennsylvania)
550. Oak Park Partnership (Illinois)
23
<PAGE> 24
551. Oak West Ltd Partnership (Oklahoma)
552. Oakland City West End Associates Ltd (Georgia)
553. Oakland Village Townhouse Associates Ltd Partnership (District of
Columbia)
554. Oak Park Partnership (Illinois)
555. Oakwood Limited Partnership (Michigan)
556. Ocala Place Ltd (Florida)
557. Olde Rivertown Venture (Indiana)
558. One Lytle Place (Ohio)
559. One West Conway Associates Ltd Partnership (Maryland)
560. Orange City Villas II Ltd (Florida)
561. Orange Village Associates (Pennsylvania)
562. Orangeburg Manor (South Carolina)
563. Orchard Mews Associates Ltd Partnership (Maryland)
564. OTC Apartments Limited Partnership (Florida)
565. Overbrook Park Ltd (Ohio)
566. Oxford Oaks Investors Ltd Partnership (Oklahoma)
567. Oxford Place Associates (Rhode Island)
568. P.A.C. Land II Limited Partnership (Ohio)
569. PAM Consolidated Assurance Company, Ltd. (Bermuda)
570. Palm House Ltd Partnership (Ohio)
571. The Park at Cedar Lawn, Ltd. (Texas)
572. Park Avenue West I Limited Partnership (Ohio)
573. Park Avenue West II Limited Partnership (Ohio)
574. Park Creek Ltd Partnership (Colorado)
24
<PAGE> 25
575. Parkview Apartments Ltd Partnership (South Carolina)
576. Parkview Associates Ltd Partnership Verified (New York)
577. Parkways Associates Ltd Partnership (Illinois)
578. Pavilion Associates (Pennsylvania)
579. Pendleton Riverside Apartments Oregon Ltd (Oregon)
580. Penn Hall Associates Ltd Partnership (Washington)
581. Peppermill Place Partners (Texas)
582. Peppertree Village Of Avon Park Ltd (Florida)
583. Pershing Waterman Phase I Ltd Partnership (Missouri)
584. Pittsfield Neighborhood Associates (Massachusetts)
585. Place One Ltd Partnership (Virginia)
586. Placid Lake Associates, Ltd. (Florida)
587. Plantation Partners Ltd. (Florida)
588. Pleasant Valley Apartments Ltd Partnership (Delaware)
589. Point West Limited Partnership (Kansas)
590. Portfolio Properties Eight Associates (District of Columbia)
591. Portland Plaza Ltd Partnership (Kentucky)
592. Portner Place Associates Ltd Partnership (District of Columbia)
593. Post Street Associates Ltd Partnership (New York)
594. Preferred Home Health Limited Partnership (Florida)
595. Pride Gardens (Mississippi)
596. Prime Aspen Limited Partnership (Texas)
597. Prime Crest, L.P. (Texas)
598. Prime H.C. Limited Partnership (Texas)
25
<PAGE> 26
599. Property Asset Brokerage of Florida (Florida)
600. Property Asset Management Services, L.P. (Delaware)
601. Property Services Group, Inc. (District of Columbia)
602. Property Asset Management Services, Inc. (Delaware)
603. Property Asset Management Services-California, L.L.C. (California)
604. Pueblo Ltd Partnership (Colorado)
605. P W III Associates Ltd Partnership (Missouri)
606. P W IV Associates Ltd Partnership (Missouri)
607. P W V Associates Ltd Partnership (Missouri)
608. P W VI Associates Ltd Partnership (Missouri)
609. Queenstown Apartments Ltd Partnership (Missouri)
610. Rancho Arms (District of Columbia)
611. Rancho Townhouse Associates (District of Columbia)
612. Randol Crossing Investors (Illinois)
613. Randol Crossing Partners (Illinois)
614. RC Associates (Illinois)
615. Registry Square Ltd Partnership (Missouri)
616. Rescorp Realty, Inc. (Illinois)
617. RI-15 Limited Partnership (District of Columbia)
618. Richlieu Associates (Pennsylvania)
619. Ridge Carlton Associates (Massachusetts)
620. Ridgecrest Associates (Illinois)
621. The Risk Specialist Group, Inc. (District of Columbia)
622. River Loft Apartments Limited Partnership (Pennsylvania)
26
<PAGE> 27
623. River Loft Associates (Massachusetts)
624. River Woods Associates Ltd Partnership (Illinois)
625. Riverview II Associates Ltd Partnership (New York)
626. Rockwell Limited Partnership (Texas)
627. Rodeo Drive Limited Partnership (California)
628. The Rogers Park Partnership (Illinois)
629. Rolling Meadows Of Ada Ltd (Oklahoma)
630. Royal Towers Limited Partnership (Missouri)
631. Ruffin Road Associates Ltd Partnership (Virginia)
632. Ruscombe Gardens Ltd Partnership (Maryland)
633. Rutherford Park Townhouses Associates (Pennsylvania)
634. S.A. Apartments, Ltd. (Alabama)
635. Saint George Villas Ltd Partnership (South Carolina)
636. San Jose Limited Partnership (Texas)
637. San Juan Apartments (District of Columbia)
638. San Juan del Centro Limited Partnership (Colorado)
639. Sandy Springs Associates Ltd (Georgia)
640. Scotch Lane Associates (Pennsylvania)
641. Scotch Associates Limited Partnership (Pennsylvania)
642. Seaside Point Partners, Ltd. (Texas)
643. Seasons Apartments, L.P. (Texas)
644. Seasons Apartments, L.L.C. (Texas)
645. Sencit Jacksonville Company, Ltd (Florida)
646. Sencit Kelly Township Associates (Pennsylvania)
27
<PAGE> 28
647. Sencit Lebanon Company (Pennsylvania)
648. Sencit F/G Metropolitan Associates (New Jersey)
649. Sherman Terrace Associates (Pennsylvania)
650. Shoreview Apartments (District of Columbia)
651. Signature Point Partners, Ltd. (Texas)
652. Signature Point Joint Venture (Texas)
653. Site 10 Community Alliance Associates Ltd Partnership (New York)
654. Sleepy Hollow Apartments Ltd Partnership (Arizona)
655. SNI Development Company Ltd Partnership (New York)
656. Somerset Utah, L.P. (Colorado)
657. South Hiawassee Village Ltd (Florida)
658. South Mountain Terrace Ltd (Arizona)
659. Southmont Apartments (Arkansas)
660. Southridge Apartments Limited Partnership (Texas)
661. Southridge Associates (Illinois)
662. Southridge Investors (Illinois)
663. Southward Limited Partnership (Texas)
664. Spring Meadow Limited Partnership (Massachusetts)
665. Spruce Ltd Partnership (Pennsylvania)
666. St. Nicholas Associates Ltd Partnership (New York)
667. Stafford Apartments Ltd Partnership (Maryland)
668. Standart Woods Associates Limited Partnership (Delaware)
669. Stirling Court Partners (Texas)
670. Stock Island Ltd Partnership (Florida)
28
<PAGE> 29
671. Storey Manor Associates Ltd Partnership (Illinois)
672. Strawbridge Square Associates Ltd Partnership (Virginia)
673. Summersong Townhouse Ltd Partnership (Colorado)
674. Sunbury Partners, Ltd. (Texas)
675. Sunrise Associates Ltd Partnership (Illinois)
676. Sunset Plaza Apartments (Mississippi)
677. TAHF Funding Corp. (Delaware)
678. TAHF II Limited Partnership (Delaware)
679. Tamarac Pines II Ltd Partnership (Texas)
680. Tamarac Pines Ltd Partnership (Texas)
681. Taunton Green Associates (Massachusetts)
682. Taunton II Associates (Massachusetts)
683. Texas Affordable Housing Investment Fund I Limited Partnership (North
Carolina)
684. Tiffany Rehab Associates Ltd Partnership (Missouri)
685. Timberlake Apartments Ltd Partnership (Texas)
686. Timuquana Park Associates (Florida)
687. Tinker Creek Limited Partnership (Virginia)
688. Tompkins Terrace Associates (New York)
689. Town North, a Limited Partnership (Arkansas)
690. Township at Highlands Partners, Ltd. (Texas)
691. Townview Towers I Partnership, Ltd. (Tennessee)
692. Treeslope Apartments Limited Partnership (South Carolina)
693. Trinity Hills Village Apartments Ltd Partnership (Tennessee)
694. Trinity Towers 14th Street Associates Ltd Partnership (District of
Columbia)
29
<PAGE> 30
695. Tumast Associates (District of Columbia)
696. Twin Towers Associates (Connecticut)
697. Two Bridges Associates Ltd Partnership (New York)
698. Tyee Associates (Arkansas)
699. United Front Homes (Massachusetts)
700. United Handicap Federation Apartments Associates (Minnesota)
701. United House Associates (Pennsylvania)
702. United Housing Partners-Cuthbert Ltd (Georgia)
703. United Housing Partners Elmwood Ltd (Alabama)
704. United Housing Partners Morristown Ltd Partnership (Tennessee)
705. United Housing Partners Welch Ltd (West Virginia)
706. United Housing Partnership Carbondale Ltd (Tennessee)
707. United Redevelopment Associates Ltd Partnership (New York)
708. University Plaza Associates (Pennsylvania)
709. Urbanizacion Maria Lopez Housing Company Ltd Partnership (New York)
710. Vantage '78 Ltd Partnership (North Carolina)
711. Verdes Del Oriente (District of Columbia)
712. Villa De Guadalupe Associates (District of Columbia)
713. Village Circle Apartments Ltd Partnership (Texas)
714. Village Green Apartments Company Ltd (Alabama)
715. Village Green Limited Partnership (Florida)
716. Vineville Towers Associates Ltd (Georgia)
717. Vistas De San Juan Associates Ltd Partnership (Puerto Rico)
718. Vistula Heritage Village (Ohio)
30
<PAGE> 31
719. Waico Apartments Associates Ltd Partnership (Wisconsin)
720. Waico Phase II Associates Ltd Partnership (Wisconsin)
721. Waipahu Associates (Hawaii)
722. Walden Oaks Associates Ltd Partnership (Illinois)
723. Walmsley Terrace Associates Ltd Partnership (Virginia)
724. Walnut Hills Associates Ltd (Ohio)
725. Walnut Springs Limited Partnership (Illinois)
726. Walnut Springs Associates (Illinois)
727. Walters/Property Asset Management Services, L.P. (Delaware)
728. Wash-West Properties (Pennsylvania)
729. Washington Chinatown Associates Ltd Partnership (District of Columbia)
730. Washington Manor Ltd Partnership (Texas)
731. Waterman Ltd Partnership (California)
732. Waters Towers Associates Ltd Partnership
733. West Oak Village Limited Partnership (Maryland)
734. Westgate Apartments (Georgia)
735. West Lake Arms Limited Partnership (Delaware)
736. Westminster Ltd Partnership (Maryland)
737. West Trails Partners, Ltd. (Texas)
738. Westchase Midrise Office Partners, Ltd. (Texas)
739. Whitefield Place Ltd Partnership (Texas)
740. Wigar Ltd Partnership (Missouri)
741. Williamsburg Limited Partnership (Illinois)
742. Windsor Apartments Associates Limited Partnership (Delaware)
31
<PAGE> 32
743. Windsor Crossings Limited Partnership (New Jersey)
744. Wollaston Manor Associates (Massachusetts)
745. Woodcrest Apartments Ltd Partnership (Texas)
746. Woodhill Associates (Illinois)
747. Woodland Ridge II Partners (Illinois)
748. Woodland Ridge Associates (Illinois)
749. Woodmark Limited Partnership (Virginia)
750. Woodside Village (Arkansas)
751. Woodside Villas of Arcadia Ltd (Florida)
752. Woodway Office Partners, Ltd. (Texas)
753. Worcester Episcopal Housing Company (Massachusetts)
754. Wyntre Brook Associates (Pennsylvania)
755. Yadkin Associates Ltd Partnership (North Carolina)
32
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0
134,579
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0
241,875
<COMMON> 0
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<CGS> 0
<TOTAL-COSTS> 46,247
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<LOSS-PROVISION> 0
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<INCOME-TAX> 0
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0
258,863
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<TOTAL-LIABILITY-AND-EQUITY> 3,054,741
<SALES> 0
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<PAGE> 1
EXHIBIT 99.1
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" and,
together with its controlled entities, the "Company") has not filed as an
exhibit to its Form 10, dated September 4, 1998, 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
Company and its subsidiaries on a consolidated basis. Pursuant to
Item 601(b)(4)(iii)(A) of Regulation S-K, the Company hereby agrees to furnish
a copy of any such agreement to the Securities and Exchange Commission upon
request.
AIMCO Properties, L.P.
By: AIMCO-GP, Inc.
its General Partner
/s/ PETER K. KOMPANIEZ
-----------------------------
Date: September 4 , 1998 By: Peter K. Kompaniez
Title: Vice Chairman and President
