<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported)
April 21, 1997
NHP INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware 000-26572 52-1445137
(State or Other Jurisdiction of (Commission File (I.R.S. Employer
Incorporation or Organization) Number) Identification No.)
8065 Leesburg Pike, Suite 400, Vienna, Virginia 22182-2738
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (703) 394-2400
<PAGE>
Item 5. Other Events
As previously reported, NHP Incorporated ("the Company") entered into a
plan on April 21, 1997, to distribute shares of The WMF Group, Ltd. (formerly
known as NHP Financial Services, Ltd.) ("WMF"), a wholly owned subsidiary of
the registrant and formerly the Company's Financial Services business
segment, to the Company's existing shareholders pursuant to the terms of a
Rights Agreement (the "Rights Agreement") approved by the Board of Directors
on that date. Pursuant to the Rights Agreement, the Company has issueed to
its stockholders rights (the "Rights") to receive a distribution of one-third
of a share of WMF stock for each right (subject to certain conditions) at the
earlier of the effective time of the merger of a wholly-owned subsidiary of
Apartment Investment and Management Company ("AIMCO") with and into the
Company pursuant to which the Company will become a wholly-owned subsidiary
of AIMCO (the "AIMCO Merger"), or on December 1, 1997, if the AIMCO Merger
has not occurred by that date. Accordingly, the Company's 1996 Consolidated
Financial Statements and 1996 Management's Discussion and Analysis of
Financial Condition and Results of Operations have been restated to reflect
WMF as discontinued operations from the date of its acquisition by the
Company, April 1, 1996.
The 1996 Consolidated Financial Statements were previously restated in
late April 1997 in conjunction with an 8-K filing by AIMCO and are included
herein as Exhibit 99.1. The 1996 Management's Discussion and Analysis of
Financial Condition and Results of Operations has been restated currently and
is included herein as Exhibit 99.2. Consolidated Financial Statements and
Management's Discussion and Analysis of Financial Condition and Results of
Operations for the three months ended March 31, 1997, reflecting WMF as
discontinued operations, are set forth in the Company's quarterly report on
Form 10-Q for the quarter ended March 31, 1997, filed with the Commission on
May 14, 1997. The distribution of WMF stock is conditioned
on the consent of lenders under the Company's credit agreement. The rights
were distributed on May 9, 1997, to stockholders of record of the Company on
May 2, 1997.
Item 7. Financial Statements and Exhibits
(c) Exhibits
Exhibit 23.1 - Consent of Arthur Andersen LLP dated June 9, 1997.
Exhibit 23.2 - Consent of Deloitte & Touche LLP dated June 9, 1997.
Exhibit 23.3 - Consent of Anders, Minkler & Diehl LLP dated
June 9, 1997.
Exhibit 23.4 - Consent of Dauby O'Connor & Zaleski, LLC dated
June 9, 1997
Exhibit 23.5 - Consent of Edwards Leap & Sauer dated June 9, 1997.
Exhibit 23.6 - Consent of George A. Hieronymous & Company, LLC dated
June 9, 1997.
Exhibit 23.7 - Consent of Goldenberg Rosenthal Friedlander, LLP dated
June 9, 1997.
Exhibit 23.8 - Consent of Hansen, Hunter & Kibbee, P.C. dated
June 9, 1997.
Exhibit 23.9 - Consent of J. H. Cohn LLP dated June 9, 1997.
Exhibit 23.10 - Consent of J. A. Plumer & Co., P.A. dated June 9, 1997.
Exhibit 23.11 - Consent of Marks Shron & Company, LLP dated
June 9, 1997.
Exhibit 23.12 - Consent of Reznick Fedder & Silverman dated
June 9, 1997.
Exhibit 23.13 - Consent of Russell Thompson Butler & Houston dated
June 9, 1997.
Exhibit 99.1 - NHP Incorporated Consolidated Financial Statements
and Supplementary Data (Restated)
Exhibit 99.2 - NHP Incorporated Management's Discussion and Analysis
of Financial Condition and Results of Operations
(Restated)
2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
NHP INCORPORATED
(Registrant)
By: /s/ Ann Torre Grant
Ann Torre Grant
Executive Vice President,
Chief Financial Officer
and Treasurer (Authorized Officer
and Principal Financial Officer)
Dated June 10, 1997
3
<PAGE>
EXHIBIT 99.1
NHP INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS, FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (RESTATED)
INDEX
Page
NHP Incorporated
Report of Independent Public Accountants ................................ F-1
Index of 1994 Auditors' Reports ......................................... F-2
Consolidated Statements of Operations for the Years Ended December 31, 1996,
1995 and 1994 ............................................................ F-12
Consolidated Balance Sheets as of December 31, 1996 and 1995 .......... F-13
Consolidated Statements of Cash Flows for the Years Ended December 31, 1996,
1995 and 1994 ............................................................ F-14
Consolidated Statements of Shareholders' Equity (Deficit) for the Years
Ended December 31, 1996, 1995 and 1994.................................. F-16
Notes to Consolidated Financial Statements................................ F-17
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of NHP Incorporated:
We have audited the accompanying consolidated balance sheets of NHP
Incorporated (formerly NHP, Inc.), a Delaware corporation, and subsidiaries
(the "Company") as of December 31, 1996 and 1995, and the related
consolidated statements of operations, shareholders' equity (deficit) and
cash flows for each of the three years in the period ended December 31, 1996.
These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits. We did not audit the
1994 financial statements of certain real estate partnerships whose operating
results are included in "income (loss) from discontinued real estate
operations, net of income taxes," in the accompanying 1994 consolidated
financial statements. The net losses of these real estate partnerships
($1,706,000) represent 10% of 1994 net income. The financial statements of
these real estate partnerships were audited by other auditors whose reports
have been furnished to us and our opinion, insofar as it relates to the
amounts (including the 1994 gross revenues disclosed in Note 2) included in
the consolidated financial statements for these real estate partnerships, is
based solely on the reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an 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 and the reports of other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of NHP Incorporated and subsidiaries
as of December 31, 1996 and 1995, and the results of their operations and cash
flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Washington, D.C.,
April 23, 1997
F-1
<PAGE>
INDEX OF 1994 AUDITORS' REPORTS
* Anders, Minkler & Diehl, LLP
Caroline Associates I
Columbus Square Associates I
Columbus Square Associates II
Pershing Waterman Phase I
PW III Associates
PW IV Associates
PW V Associates
PW VI Associates
Savoy Court Associates
Wigar, Ltd.
Arthur Andersen LLP
NHP Incorporated
* Dauby O'Connor & Zaleski, LLC
Brookview Apartments Company Limited
Clover Ridge East Limited Partnership
Colony Apartments Company Limited
East Hampton Limited Partnership
Edgewood II Associates
Fairburn & Gordon Associates, Phase I
Fairburn & Gordon Associates, Phase II
Laing Village
Oakland City/West End Associates, Ltd.
Orangeburg Manor
Parkways Associates
Pleasant Valley Apartments, Ltd.
Sandy Springs Associates, Ltd.
The Oak Park Partnership
The Rogers Park Partnership
Tiffany Rehab Associates
Village Green Apartments Company Limited
Vineville Towers Associates, Ltd.
Westgate Apartments
* Deloitte & Touche LLP
107-145 West 135th Street Associates
Algonquin Tower Limited Partnership
All Hallows Associates
Allentown Towne House Limited Partnership
Anglers Manor Associates
Antioch Apartments, Ltd.
Arvada House
Audobon Park Associates
Baldwin Oaks Elderly, Ltd.
Baldwin Towers Associates
Basswood Manor Limited Partnership
Bayview Hunters Point Apartments
Bensalem Gardens Associates
Berkley Limited Partnership
Bloomsburg Elderly Associates
Boynton Beach Limited Partnership
Briarwood Apartments
- --------------------
* Incorporated by reference to Exhibit 99 to the Registration Statement on
Form S-1 (File No. 33-93110) of NHP Incorporated.
F-2
<PAGE>
INDEX OF 1994 AUDITORS' REPORTS
Brightwood Manor Associates
Brinton Manor No. 1 Associates
Brinton Towers Associates
Brookside Apartments Associates
Buena Vista Apartments, Ltd.
Cabell Associates of Lakeview
California Square Limited Partnership
California Square II Limited Partnership
Campbell Heights Associates
Canterbury Gardens Associates
Capital Park Limited Partnership
Caroline Arms Limited Partnership
Center Square Associates
Central Village Associates
Chapel NDP
Cheek Road Limited Partnership
Cheyenne Village Apartments, Ltd.
Clay Courts Associates
College Heights
College Park Apartments
College Park Associates
Community Developers of High Point
Congress Park Associates II
Copperwood Limited
Copperwood II Limited
Cottonwood Apartments
Cumberland Court Associates
Cypress Gardens, Limited
Darby Townhouses Associates
Darbytown Development Associates
Delcar-S, Ltd.
Delcar-T, Ltd.
DIP Limited Partnership
DIP Limited Partnership - II
DIP Limited Partnership - III
Discovery Limited Partnership
Doral Gardens Associates
Duquesne Associates No. 1
Eastman Associates
Edmond Estates Limited Partnership
Elden Limited Partnership
Elm Creek Limited Partnership
Esbro Limited Partnership
Fairmeadows Limited Partnership
Fairmont #1 Limited Partnership
Fairmont #2 Limited Partnership
Fairview Homes Associates
Fairwood Associates
Federal Square Village
- --------------------
* Incorporated by reference to Exhibit 99 to the Registration Statement on
Form S-1 (File No. 33-93110) of NHP Incorporated.
F-3
<PAGE>
INDEX OF 1994 AUDITORS' REPORTS
Field Associates
Forest Green Limited Partnership
Forest Park Elderly Associates
Forrester Gardens, Ltd.
Fort Carson Associates
Foxwood Manor Associates
Franklin Chapel Hill Associates
Franklin Eagle Rock Associates
Franklin Northwoods Associates
Franklin Park Limited Partnership
Franklin Pheasant Ridge Associates
Franklin Ridgewood Associates
Franklin Woods Associates
Friendset Housing Company
Frio Housing, Ltd.
G. W. Carver Limited
Galion Limited Partnership
Garfield Hill Associates
Gateway Village Associates
Gladys Hampton Houses Associates
Golden Apartments I
Golden Apartments II
Grandview Apartments
Greater Mount Calvary Terrace, Ltd.
Greater Richmond Community Development Corp. I and Associates
Greater Richmond Community Development Corp. II and Associates
Green Mountain Manor Limited Partnership
Griffith Limited Partnership
Gulfway Limited Partnership
H.R.H. Properties, Ltd.
Hamilton Gardens, Ltd.
Hamilton Heights Associates
Harold House Limited Partnership
Hatillo Housing Associates
Hickory Ridge Associates, Ltd.
Hillcrest Green Apartments, Ltd.
Hillside Village Associates
Hilltop Apartments Associates
Hilltop Limited Partnership
Hopkins Renaissance Associates
Hudson Terrace Associates
Hurbell II Limited Partnership
Indian Valley I Limited Partnership
Indian Valley II Limited Partnership
Indian Valley III Limited Partnership
Ingram Square Apartments, Ltd.
Jamestown Village Associates
Jersey Park Associates
JFK Associates
Johnston Square Associates
- --------------------
* Incorporated by reference to Exhibit 99 to the Registration Statement on
Form S-1 (File No. 33-93110) of NHP Incorporated.
F-4
<PAGE>
INDEX OF 1994 AUDITORS' REPORTS
JVL Limited
JVL 16 Associates
JVL 18 Associates
JVL 19 Associates
Kennedy Homes Limited Partnership
Kenneth Arms Apartments
Key Parkway West Associates
Kimberly Associates Limited Partnership
Knollcrest Apartments
La Salle Apartments
La Vista Associates
Lafayette Manor Associates
Lafayette Towne Elderly, Ltd.
Lafayette Towne Family, Ltd.
Lake Forest Apartments
Langenheim Associates
Las Americas Housing Associates
Lassen Associates
Laurel Gardens
Lewisburg Associates
Lewisburg Elderly Associates
Leyden Limited Partnership
Lincmar Associates
Lincoln Park Associates
Lock Haven Elderly Associates
Lock Haven Gardens Associates
Loring Towers Apartments Limited Partnership
M & P Development Company
Madison Hill Limited Partnership
Manzanita Arms Apartments
Maple Hill Associates
Maple Park East Limited Partnership
Maple Park West Limited Partnership
Mayfair Manor Limited Partnership
Meadowood Apartments - Phase I (Meadowood Associates)
Meadowood Apartments - Phase II (Meadowood Associates)
Meadowood Associates III, Ltd.
Meadows Apartments Limited Partnership
Meadows East Apartments Limited Partnership
Menlo Limited Partnership
Merced Commons I
Merced Commons II
Mill Street Associates
Miramar Housing Associates
Montblanc Garden Apartments Associates
Montblanc Housing Associates
Morrisania Towers Housing Company
Moss Gardens Ltd.
Murphy Blair Associates III
New Lake Village Apartments
- --------------------
* Incorporated by reference to Exhibit 99 to the Registration Statement on
Form S-1 (File No. 33-93110) of NHP Incorporated.
F-5
<PAGE>
INDEX OF 1994 AUDITORS' REPORTS
New West 111th Street Housing Company
New West 111th Street Two Associates
Newton Hill Limited Partnership
Northgate Village Limited Partnership
Northlake Terrace Associates
Northwest Terrace Associates
Oakland Village Townhouse Associates
Ocala Place, Ltd.
Olde Rivertowne Venture
One Lytle Place
One West Conway Associates
Orange Village Associates
Overbrook Park, Ltd.
Palm House Limited Partnership
Park Avenue West I Limited Partnership
Park Avenue West II Limited Partnership
Park Creek Limited Partnership
Pavillion Associates
Place One Limited Partnership
Portland Plaza Partnership
Portner Place Associates
Post Street Associates
Pride Gardens Limited Partnership
Pueblo Apartments Associates, Ltd.
Rancho Arms Apartments
Retirement Manor Associates
RI-15 Limited Partnership
Richlieu Associates
River Front Apartments Limited Partnership
River Woods Associates
Riverview II Associates
Rockwell Limited Partnership
Rolling Meadows Of Ada, Ltd.
Royal Towers Limited Partnership
Ruffin Road Associates
Rutherford Park Townhouses Associates
San Jose Limited Partnership
San Juan Apartments
San Juan Del Centro Limited Partnership
Sencit Towne House Limited Partnership
Sherman Terrace Associates
Shoreview Apartments
Site 10 Community Alliance Associates
Sleepy Hollow Apartments
SNI Development Company
Southmont Apartments
Southridge Apartments Limited Partnership
Southward Limited Partnership
Spring Meadow Limited Partnership
Springfield Limited Partnership
- --------------------
* Incorporated by reference to Exhibit 99 to the Registration Statement on
Form S-1 (File No. 33-93110) of NHP Incorporated.
F-6
<PAGE>
INDEX OF 1994 AUDITORS' REPORTS
Spruce Limited Partnership
Stafford Apartments
Stock Island Limited Partnership
Storey Manor Associates
Strawbridge Square Associates Limited Partnership
Summersong Townhouses Limited Partnership
Sunrise Associates
Sunset Plaza Apartments
Susquehanna View Limited Partnership
Timberlake Apartments Limited Partnership
Timuquana Park Associates
Tinker Creek Limited Partnership
Town North
Treeslope Apartments Associates
Trinity Apartments
Trinity Hills Village Apartments
Trinity Towers - 14th Street Associates, Ltd.
Tumast Associates
United Handicap Federation Apartment Associates
United House Associates
United Housing Partners - Carbondale, Ltd.
United Redevelopment Associates
University Plaza Associates
Vantage 78
Verdes Del Oriente
Villa De Guadalupe Associates
Village Circle Apartments, Ltd.
Village Green Limited Partnership
Village Park II
Vistas De San Juan Associates
Waico Apartments Associates
Waico Phase II Associates
Walden Oaks Associates
Walmsley Terrace Associates
Walnut Hills Associates, Ltd.
Wash-West Properties
Washington Manor Limited Partnership
Waterman Limited Partnership
Waters Towers Associates
West Oak Village Limited Partnership
Whitefield Place, Ltd.
Woodmark Limited Partnership
Yadkin Associates
* Edwards Leap & Sauer
Buffalo Village Associates
Genessee Gardens Associates
Ida Tower
- --------------------
* Incorporated by reference to Exhibit 99 to the Registration Statement on
Form S-1 (File No. 33-93110) of NHP Incorporated.
F-7
<PAGE>
INDEX OF 1994 AUDITORS' REPORTS
* George A. Hieronymus & Company, LLC
Athen Arms Associates
Colonial Terrace I Associates
Colonial Terrace II Associates
* Goldenberg Rosenthal Friedlander, LLP
Baisley Park Associates
Brunswick Village Limited Partnership
Churchview Gardens Limited Partnership
Harris Gardens Limited Partnership
Hawksworth Limited Partnership
Hollows Associates
Kimberton Apartments Associates
Washington Northgate Limited Partnership
Washington Westgate Limited Partnership
Windsor Apartments Associates
* Hansen, Hunter & Kibbee, P.C.
Haines Associates Limited Partnership
King-Bell Associates
Monmouth Associates Limited Partnership
Pendleton Riverside Apartments, Oreg., Ltd.
Penn Hall Associates Limited Partnership
Rodeo Drive Limited Partnership
South Mountain Terrace, Ltd.
Woodland Apartments, Oreg., Ltd.
* J.H. Cohn, LLP
Marlboro Greens Limited Partnership
* J.A. Plumer & Co., P.A.
630 East Lincoln Avenue Associates
Aspen Stratford Apartments Company B
Aspen Stratford Apartments Company C
Benjamin Banneker Plaza Associates
Brightwood Limited Partnership
Cambridge Heights Apartments, Ltd.
Carter Associates Limited Partnership
Cherry Estates
Christopher Court Housing Company
Concord House Associates
Duke Manor Associates
Elderly Housing Associates Ltd. Partnership
Forest Apartments Associates
Gate Manor Apartments, Ltd.
Greenfield Apartments Limited Partnership
Greenfield North Apartments Limited Partnership
Haili Associates
Houston Aristocrat Apartments, Ltd.
Kapuna Associates
- --------------------
* Incorporated by reference to Exhibit 99 to the Registration Statement on
Form S-1 (File No. 33-93110) of NHP Incorporated.
F-8
<PAGE>
INDEX OF 1994 AUDITORS' REPORTS
Kinloch Urban East Housing
Koolau Housing Associates
Lakeview Arms Associates
Lee-Hy Manor Associates Limited Partnership
Locust Park Associates
Loring Towers Associates
Mahoning Associates
Milliken Apartments Company
Monument Street Limited Partnership
Neighborhoods of the Universities Lock Street Apartments Company
Oak Hollow South Associates
Orchard Mews Associates
Oxford Place Associates
Pittsfield Neighborhood Associates
Prince Street Towers Limited Partnership
Sencit-Lebanon Company
St. Nicholas Associates
Tamarac Pines, Ltd.
Tamarac Pines II, Ltd.
Taunton Green Associates
Taunton II Associates
Tompkins Terrace Associates
Waipahu Associates
Washington Chinatown Associates
Woodcrest Apartments, Ltd.
Worchester Episcopal Housing Company
* Marks Shron & Company, LLP
Two Bridges Associates
* Reznick Fedder & Silverman
Beautiful Village Associates Redevelopment Company
Branchwood Towers Limited Partnership
Citrus Park Associates, Ltd.
Community Circle II Limited
Copperstone Limited Partnership
Diakonia Associates Limited Partnership
Easton Terrace I Associates
Easton Terrace II Associates
Eastridge Apartments
Emory Grove Associates Limited Partnership
First Alexandria Associates
Flatbush NSA Associates
Franklin Square School Associates
Gates Mill I Limited Partnership
Grosvenor House Associates Limited Partnership
Harris Park Limited Partnership
Hollybush Gardens I
Hollybush Gardens II
Intown West Associates Limited Partnership
- --------------------
* Incorporated by reference to Exhibit 99 to the Registration Statement on
Form S-1 (File No. 33-93110) of NHP Incorporated.
F-9
<PAGE>
INDEX OF 1994 AUDITORS' REPORTS
Lake Avenue Associates
Lake Crossing Limited Partnership
Lakehaven Associates One
Lakehaven Associates Two
Linden Court Associates
Loudoun House Limited Partnership
Monaco Arms Associates I
Monaco Arms Associates II
Muske Limited Partnership
Natick Associates
Oakcrest Terrace Apartments
Oakwood Limited Partnership
Parkview Associates
Queenstown Apartments Limited Partnership
Rancho Townhouse Associates
Ruscombe Gardens Limited Partnership
Sencit-Jacksonville Company LTD
Sheffield Associates
Snap IV Limited Partnership
Tara Bridge Limited Partnership
Twin Towers Associates
Tyee Associates Limited Partnership
Urbanization Maria Lopez Housing Company
Westminster Associates
Wollaston Manor Associates
Woodside Village Limited Partnership
* Russell Thompson Butler & Houston
Chesterfield Housing Associates
Community Developers Of Princeville
Crosland Housing Associates
Eastcourt Village Partners
Eustis Apartments, Ltd.
Grove Park Villas, Ltd.
Hemingway Housing Associates
Highlands Village II
Housing Assistance of Mt. Dora, Ltd.
Housing Assistance of Orange City, Ltd.
Housing Assistance of Sebring, Ltd.
Housing Assistance of Vero Beach, Ltd.
Hurbell I Limited Partnership
Hurbell IV Limited Partnership
Lakeview Villas, Ltd.
Mccoll Housing Associates
Miami Elderly Associates
Orange City Villas II, Ltd.
Parkview Apartments, Ltd.
Parkview Arms Associates I
Parkview Arms Associates II
Registry Square, Ltd.
- --------------------
* Incorporated by reference to Exhibit 99 to the Registration Statement on
Form S-1 (File No. 33-93110) of NHP Incorporated.
F-10
<PAGE>
INDEX OF 1994 AUDITORS' REPORTS
South Hiawassee Village, Ltd.
St. George Villas
The Meadows Apartments
Townview Towers I Partnership, Ltd.
Twin Gables Associates
United Housing Partners Cuthbert, Ltd.
United Housing Partners Elmwood, Ltd.
United Housing Partners Morristown, Ltd.
United Housing Partners Welch, Ltd.
VOA-Nicollet Towers Associates
Woodside Villas of Arcadia, Ltd.
- --------------------
* Incorporated by reference to Exhibit 99 to the Registration Statement on
Form S-1 (File No. 33-93110) of NHP Incorporated.
F-11
<PAGE>
NHP INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------
(Restated)
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Revenue, substantially all from
related parties
Property management services $ 54,632 $ 48,336 $ 40,953
On-site personnel, general and
administrative
cost reimbursement 127,266 117,249 98,158
Administrative and reporting fees 4,593 4,148 3,680
Other 8,488 4,941 4,505
--------- --------- ---------
Total revenue 194,979 174,674 147,296
Expenses
Salaries and benefits
On-site employees 124,138 113,100 93,560
Off-site employees 26,641 22,371 19,099
Other general and administrative 14,074 11,899 10,968
Costs charged to the Real Estate Companies 3,128 4,149 4,598
Amortization of purchased management
contracts 4,562 3,076 2,043
Other depreciation and amortization 1,759 727 481
Non-recurring expenses - 45 1,806
--------- --------- ---------
Total expenses 174,302 155,367 132,555
--------- --------- ---------
Operating income 20,677 19,307 14,741
Interest income 747 292 121
Interest expense (3,982) (5,788) (5,857)
--------- --------- ---------
Income from continuing operations before
income taxes and extraordinary item 17,442 13,811 9,005
Income tax (provision) benefit (6,977) 17,802 -
--------- --------- ---------
Income from continuing operations before
extraordinary item 10,465 31,613 9,005
Income (loss) from discontinued operations, net
of income tax (provision) benefit of ($1,144),
$1,309 and $0 in 1996, 1995 and 1994,
respectively 1,155 (1,963) 7,490
--------- --------- ---------
Income before extraordinary item 11,620 29,650 16,495
Extraordinary item, net of income taxes -
(see Note 16) - (400) -
--------- --------- ---------
Net income $ 11,620 $ 29,250 $ 16,495
--------- --------- ---------
--------- --------- ---------
Net income (loss) per common share:
Continuing operations before extraordinary
item $ .82 $ 3.27 $ 1.11
Discontinued operations .09 (.20) .93
Extraordinary item - (.04) -
--------- --------- ---------
Net income $ .91 $ 3.03 $ 2.04
--------- --------- ---------
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-12
<PAGE>
NHP INCORPORATED
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
December 31,
----------------------------
(Restated)
ASSETS 1996 1995
---- ----
<S> <C> <C>
Cash and cash equivalents $ 4,779 $ 5,996
Receivables, net, substantially all from related parties 15,270 12,809
On-site cost reimbursement receivable, substantially all from related parties 3,816 2,747
Current portion of net deferred tax asset 6,357 5,916
Investment in real estate held for sale 13,719 -
Other current assets 1,355 277
-------- ---------
Total current assets 45,296 27,745
Purchased management contracts, net 43,718 34,568
Net assets of discontinued operations 23,400 -
Goodwill, net 5,887 -
Property, equipment and capitalized software, net 10,415 3,523
Other assets 10,832 4,483
Net deferred tax asset 7,441 14,451
-------- ---------
Total Assets $146,989 $ 84,770
-------- ---------
-------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current portion of long-term debt, including amounts payable to related
parties of $143 and $356 in 1996 and 1995, respectively $ 720 $ 412
Accounts payable 3,947 4,063
Accrued expenses, including amounts associated with related parties of
$4,090 and $4,365 in 1996 and 1995, respectively 11,452 10,001
Accrued on-site salaries and benefits 3,816 2,747
Deferred revenues and other 3,400 2,232
-------- ---------
Total current liabilities 23,335 19,455
Long-term debt, including amounts payable to related parties of
$0 and $139 in 1996 and 1995, respectively 62,607 23,278
Other long-term liabilities 5,034 2,883
-------- ---------
Total liabilities 90,976 45,616
Commitments and contingencies (Note 14)
Shareholders' equity
Common stock, $0.01 par value, 25,000,000 shares authorized;
12,586,629 and 12,264,675 shares issued and outstanding in
1996 and 1995, respectively 126 123
Additional paid-in capital 131,529 126,293
Accumulated deficit (75,642) (87,262)
-------- ---------
Total shareholders' equity 56,013 39,154
-------- ---------
Total Liabilities and Shareholders' Equity $146,989 $ 84,770
-------- ---------
-------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-13
<PAGE>
NHP INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------
(Restated)
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income $ 11,620 $ 29,250 $ 16,495
Extraordinary item, net of income taxes - 400 -
Discontinued operations, net of income taxes (1,155) 1,963 (7,490)
--------- --------- --------
Income before extraordinary item and
discontinued operations 10,465 31,613 9,005
Depreciation and amortization 6,321 3,803 2,524
Income taxes 5,997 (18,744) -
Increase in receivables, substantially all from
related parties (3,529) (5,893) (2,389)
(Increase) decrease in other assets (1,646) (1,477) 160
Increase (decrease) in accounts payable and
accrued expenses 3,057 (293) 886
Increase in deferred revenues and other
liabilities 1,124 515 76
Other 176 176 1,630
--------- --------- --------
Net cash provided by continuing operations 21,965 9,700 11,892
Net cash used in discontinued operations (164) (8,554) (217)
--------- --------- --------
Net cash provided by operating activities 21,801 1,146 11,675
--------- --------- --------
Cash Flows From Investing Activities:
Purchase of businesses (19,763) - -
Investment in real estate held for sale (13,719) - -
Purchase of management contracts (8,798) (13,809) (2,059)
Purchase of long-term notes receivable (8,374) - -
Purchase of fixed assets (6,161) (2,217) (2,484)
--------- --------- --------
Net cash used in investing activities (56,815) (16,026) (4,543)
--------- --------- --------
Cash Flows From Financing Activities:
Additional borrowings 53,000 33,207 133
Repayments of debt (19,471) (61,466) (6,000)
Borrowings from related parties - 1,119 3,903
Repayments of notes payable to related parties (352) (10,369) (332)
Repurchases of common stock from related parties - (375) (808)
Proceeds from issuance of common stock, net - 51,987 -
Proceeds from option exercises 1,211 - -
Proceeds from sale of stock to related parties - - 343
Payment of financing, offering and disposition
costs (591) (5,317) (1,515)
--------- --------- --------
Net cash provided by (used in) financing
activities 33,797 8,786 (4,276)
--------- --------- --------
(Decrease) increase in cash and cash equivalents (1,217) (6,094) 2,856
Cash and cash equivalents, beginning of period 5,996 12,090 9,234
--------- --------- --------
Cash and cash equivalents, end of period $ 4,779 $ 5,996 $ 12,090
--------- --------- --------
--------- --------- --------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-14
<PAGE>
NHP INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Supplemental Disclosures of Cash Flow Information:
Cash interest payments $ 4,448 $ 6,537 $ 4,607
Cash income tax payments $ 2,380 $ 942 $ 49
Non-cash items:
Notes payable given as consideration for
acquisitions $ 6,293 $ - $ -
Stock issued in acquisition of NHP
Financial Services, Ltd. $ 3,780 $ - $ -
Acquisition of leasehold improvements and
other fixed assets through lease incentives $ 2,217 $ - $ -
Reduction in notes payable to related parties
in consideration for the sale of the Real
Estate Companies $ - $ 9,129 $ -
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-15
<PAGE>
NHP INCORPORATED
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
Common Stock Additional
------------------------ Paid-In Accumulated Treasury
Shares Par Value Capital Deficit Stock Total
--------- --------- ------- ----------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1994 8,030,925 $ 80 $ 69,343 $ (133,007) $ - $(63,584)
Sale of common stock 32,500 - 343 - - 343
Repurchase of common stock - - - - (808) (808)
Retirement of treasury stock (76,500) - (808) - 808 -
Net income - - - 16,495 - 16,495
---------- ---- --------- ---------- ------ ---------
Balance, December 31, 1994 7,986,925 80 68,878 (116,512) - (47,554)
Stock option compensation - - 583 - - 583
Repurchase of common stock - - - - (375) (375)
Retirement of treasury stock (31,250) - (375) - 375 -
Issuance of common stock
in public offering, net 4,300,000 43 48,198 - - 48,241
Issuance of common stock
to Directors 9,000 - 127 - - 127
Sale of Real Estate Companies
(Note 1) - - 8,882 - - 8,882
Net income - - - 29,250 - 29,250
---------- ---- --------- ---------- ------ ---------
Balance, December 31, 1995 12,264,675 123 126,293 (87,262) - 39,154
Stock issued in acquisition 210,000 2 3,778 - - 3,780
Exercise of stock options 111,954 1 1,497 - (39) 1,459
Retirement of treasury stock - - (39) - 39 -
Net income - - - 11,620 - 11,620
---------- ---- --------- ---------- ------ ---------
Balance, December 31, 1996 12,586,629 $126 $ 131,529 $ (75,642) $ - $ 56,013
---------- ---- --------- ---------- ------ ---------
---------- ---- --------- ---------- ------ ---------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-16
<PAGE>
NHP INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) NATURE OF BUSINESS AND ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of NHP
Incorporated and its wholly-owned subsidiaries (the "Company"). On August 18,
1995, the Company sold those of its subsidiaries which held all of the
Company's direct and indirect interests in property-owning partnerships,
along with its captive insurance subsidiary and certain other related assets
(collectively referred to as the "Real Estate Companies") to the two
controlling shareholders of the Company, Demeter Holdings Corporation
("Demeter") and Capricorn Investors, L.P. ("Capricorn"), and J. Roderick
Heller, III, the Chairman, President and Chief Executive Officer of the
Company ("Mr. Heller"). The consolidated financial statements include the
accounts of the Real Estate Companies through August 18, 1995, presented as
discontinued operations in accordance with generally accepted accounting
principles ("GAAP"). The Company continues to provide services to the Real
Estate Companies and, therefore, intercompany revenues and expenses between
the Company and the Real Estate Companies have not been eliminated from the
Company's revenues and expenses in the consolidated financial statements for
the periods prior to August 18, 1995. All other material intercompany
accounts and transactions have been eliminated in consolidation.
As of April 1, 1996, NHP Incorporated closed the acquisition of all of
the outstanding capital stock of WMF Holdings, Ltd., which was subsequently
renamed NHP Financial Services, Ltd., for consideration of approximately $21
million in the form of $16.8 million in cash and 210,000 shares of the
Company's common stock. NHP Financial Services, Ltd. is the owner of
Washington Mortgage Financial Group, Ltd. ("Washington Mortgage Financial")
of Fairfax County, Virginia, one of the nation's leading multifamily mortgage
originators and servicers (collectively, "NHP Financial Services"). Included
in Washington Mortgage Financial is WMF/Huntoon, Paige Associates Limited
("WMF/Huntoon, Paige"), a leading FHA mortgage originator and servicer
located in Edison, New Jersey.
On April 19, 1997, the Company's Board of Directors approved a plan to
spin-off NHP Financial Services (the Company's former Financial Services
business segment) to the Company's current shareholders. Accordingly, the
accompanying financial statements have been restated to reflect NHP Financial
Services as discontinued operations in accordance with GAAP. Previously reported
revenue related to the Financial Services business segment of $24.8 million is
now included in net income from discontinued operations. For further discussion,
see Note 2.
NATURE OF BUSINESS
The Company's continuing operations provide a broad array of real estate
services nationwide including property management and asset management as well
as related services including equity investments, purchasing, risk management
and home health care.
The Company provides a full range of property management and related
services to owners of multifamily rental housing properties, primarily
properties owned by partnerships in which the Real Estate Companies have an
ownership interest. The properties served by the Company are located in
urban, suburban and rural areas throughout various regions of the United
States other than the Northwest region. This reduces the impact of local
economic cycles on the overall operations of the Company. The Company
provides services to both "conventional" (market rate) and "affordable"
properties. Affordable properties receive some form of Federal and/or state
assistance and are generally restricted to low or moderate income tenants.
Approximately 64% of the properties and 44% of the units managed by the
Company as of December 31, 1996 are affordable properties and units. A
substantial portion of the affordable properties were built or acquired by
the owners with the assistance of programs administered by the United States
Department of Housing and Urban Development ("HUD") that provide mortgage
insurance, favorable financing terms, or rental assistance payments to the
F-17
<PAGE>
owners. As a condition to the receipt of assistance under these and other HUD
programs, the properties must comply with various HUD requirements including
limiting rents on these properties to amounts approved by HUD.
For the past several years, various proposals have been advanced by HUD,
the Congress and others proposing the restructuring of Section 8 of the
United States Housing Act of 1937 ("Section 8"). These proposals generally
seek to lower subsidized rents to market levels and to lower required debt
service costs as needed to ensure financial viability at the reduced rents,
but vary greatly as to how that result is to be achieved. Some proposals
include a phase-out of project-based subsidies on a property-by-property
basis upon expiration of a property's Housing Assistance Payments Contract
("HAP Contract"), with a conversion 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 that geographic
area.
Congress has not yet accepted any of these restructuring proposals and
instead has elected to renew expiring Section 8 HAP Contracts for one year
terms, generally at existing rents. While the Company does not believe that
the proposed changes would result in a significant number of tenants
relocating from properties managed by the Company, there can be no assurance
that the proposed changes would not significantly affect the Company's
management portfolio. Furthermore, there can be no assurance that changes in
federal subsidies will not be more restrictive than those currently proposed
or that other changes in policy will not occur. Any such changes could have
an adverse effect on the Company's property management revenues.
DEPENDENCE ON THE REAL ESTATE COMPANIES FOR PROPERTY SERVICES REVENUES
The Company is, and will continue to be, substantially dependent on
revenue from services provided to properties controlled by the Real Estate
Companies. Approximately 67% of the Company's property management revenue in
1996 was derived from fees for services provided to properties controlled by
the Real Estate Companies. Pursuant to the agreements with the Real Estate
Companies discussed in Note 13, the Real Estate Companies are required for a
period of at least 25 years, subject to certain conditions, to cause the
Company to be selected to provide services to each of the properties the Real
Estate Companies control and properties they may control in the future.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
those estimates.
PROPERTY SERVICES - REVENUE AND EXPENSES
The Company recognizes property management, Buyers Access-Registered
Trademark-, tax credit investment and insurance advisory fee revenues as
services are rendered and the revenue is earned. Administrative and reporting
fees are earned for providing administrative services to certain partnerships
in which the Real Estate Companies have ownership interest. These fees are
payable only to the extent distributable cash flow of the partnerships, as
defined, is available. The Company accrues these fees as services are
rendered and establishes a reserve equal to the amount of accrued fees that
are not assured of being paid. Prepayments received on service contracts are
deferred and recognized as revenue when the related services are performed.
Revenues from Preferred Home Health are recognized as services are performed.
Property management services revenue includes direct management fees, central
accounting fees, computer fees and asset management fees as well as various
other fees earned in conjunction with the management of properties. Buyers
Access-Registered Trademark- revenue, tax credit investment revenue, revenues
from Preferred Home Health and insurance advisory fee revenue are included in
other revenue on the Consolidated Statement of Operations.
Personnel hired to provide operating and management services to the
individual properties which the Company manages are employees of the Company
("On-site Employees"). All payroll costs, including payroll taxes and
benefits, relating to On-site Employees are reimbursable to the Company by
the individual properties. These costs,
F-18
<PAGE>
which totaled $124.1, $113.1, and $93.6 million for the years ended December
31, 1996, 1995 and 1994, respectively, have been reflected as operating
expenses, and the related reimbursements have been included in operating
revenue as part of on-site personnel, general and administrative cost
reimbursements. The Company accrues as a liability amounts charged to the
individual properties for On-site Employee benefits (health insurance and
401(k) Plan employer contributions) which have not yet been paid to third
party providers of services. All other employees of the Company are
classified as "Off-site Employees."
The Company also provides asset management, finance, accounting and tax
services to the Real Estate Companies on a cost reimbursable basis. The costs
charged back to the Real Estate Companies have been reflected as operating
expenses and the related reimbursements have been included in operating
revenue as part of on-site personnel, general and administrative cost
reimbursements in the accompanying consolidated financial statements and
amounted to $3.1, $4.1 and $4.6 million for the years ended December 31,
1996, 1995 and 1994, respectively.
INCOME TAXES
The benefit (provision) for income taxes includes Federal and state
income taxes currently payable and those deferred or prepaid because of
temporary differences between financial statement and tax bases of assets and
liabilities. The net deferred tax asset relates primarily to net operating
loss carryforwards ("NOLs") recognized by the Company subsequent to the sale
of the Real Estate Companies. For further discussion see Note 9.
NET INCOME PER SHARE
Net income per share is computed using the weighted average number of
common shares and equivalents outstanding during each period. Common share
equivalents are attributable primarily to outstanding stock options. The
weighted average shares and equivalents used in the per share calculations
were 12,729,636, 9,644,745, and 8,094,733 for the years ended December 31,
1996, 1995 and 1994, respectively. As there is not a material difference
(less than 3%) between net income per share and fully-diluted net income per
share, only net income per share is presented.
In February 1995, the Company's Board of Directors declared a 25 for 1
split of the Company's common stock. All share and per share amounts have
been restated to reflect the stock split.
On August 18, 1995, the Company completed an initial public offering
("IPO") of 4.3 million shares of common stock and received net proceeds of
approximately $52.0 million. The net proceeds were used in their entirety to
repay certain of the Company's outstanding debt (see Note 8).
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with initial
maturities of 90 days or less to be cash equivalents.
RECEIVABLES
Receivables, which are substantially all from related parties, are stated
net of an allowance for doubtful accounts of $2.5 and $1.6 million at
December 31, 1996 and 1995, respectively.
PURCHASED MANAGEMENT CONTRACTS
The cost of acquiring the rights to manage multifamily real estate
properties is capitalized and amortized over the shorter of 15 years or the
estimated life of the management contracts which include projected renewals.
Purchased management contracts are being amortized over terms ranging from 1
to 15 years. The Company periodically reevaluates its assumptions regarding
projected renewals for the purpose of determining the need to adjust the
estimated life of management contracts. Purchased management contracts are
stated net of accumulated amortization of $11.9 and $8.4 million at December
31, 1996 and 1995, respectively.
F-19
<PAGE>
GOODWILL
Goodwill represents the excess of the cost of acquired businesses over
the fair value of their tangible and identified intangible assets. Goodwill
was recorded in conjunction with the Goldberg acquisition described in Note 4.
Goodwill is being amortized on a straight-line basis over 10 years. The
Company reviews the carrying value of goodwill for impairment whenever events
or changes in circumstances indicate that the carrying amount may not be
recoverable. Goodwill is stated net of accumulated amortization of $0.3
million at December 31, 1996.
PROPERTY, EQUIPMENT AND CAPITALIZED SOFTWARE
Property and equipment is carried at cost, net of accumulated
depreciation, and includes all major renewals and betterments. Maintenance,
repairs and minor replacements are expensed as incurred. Depreciation expense
is computed on the straight-line basis over the estimated useful lives of the
related assets, or the lesser of useful life or lease term for leasehold
improvements. The lives used for calculating depreciation vary from 5 to 7
years.
Computer software purchased from or developed by outside vendors is
capitalized and is carried at cost net of accumulated amortization.
Amortization expense is computed on a straight-line basis over the shorter of
the estimated useful life of the software or five years.
OTHER ASSETS
Other assets includes notes receivable, deferred acquisition costs,
deferred financing costs and other non-current assets.
NOTES RECEIVABLE - In conjunction with the 1996 Goldberg Acquisition
discussed in Note 4, the Company purchased two notes receivable. The two
notes bear interest at 9% and 9.75% and are due from the project limited
partnerships of two Florida rental retirement communities to the extent the
properties have net cash flow available for payment. The 9% note was recorded
at its face value of $5.1 million, which approximates fair value. The 9.75%
note has a face value of $7.4 million and was recorded at its estimated fair
value of $3.3 million, net of a discount of $4.1 million. The discount is
being amortized into interest income over 15 years using a method that
approximates the effective interest method. The net balance as of December
31, 1996, on these notes receivable, including approximately $0.5 million of
which is considered current and is included in other current assets on the
Consolidated Balance Sheet, was $8.4 million. The Company recognized $0.4
million of interest income on these notes in 1996.
DEFERRED FINANCING COSTS - Certain costs of obtaining the financing
arrangements described in Note 8 have been deferred and are being amortized
to interest expense over the remaining term of the related debt. In 1995, the
Company recorded as an extraordinary item the write off of deferred financing
costs related to the Company's previous credit facility (see Note 16).
Deferred financing costs, net of accumulated amortization, were $0.4 and $0.6
million as of December 31, 1996 and 1995, respectively.
DEFERRED ACQUISITION COSTS - Certain costs related to the investigation,
pursuit and negotiation of potential acquisitions are deferred until the
acquisition is consummated or until the Company determines that it will no
longer pursue a particular acquisition. Deferred costs associated with a
completed acquisition are considered part of the acquisition price and are
allocated, along with the costs incurred at closing, to the asset or assets
acquired. Costs associated with potential acquisitions that are determined to
no longer be viable are expensed in the period of the determination. Deferred
acquisition costs were $0.7 and $2.6 million at December 31, 1996 and 1995,
respectively.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with the
current year presentation.
F-20
<PAGE>
NEW ACCOUNTING STANDARD
The Company adopted SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," and the
disclosure provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation," on January 1, 1996. These statements did not have an effect on
the Company's financial position or results of operations. See Note 11 for
further discussion of SFAS No. 123.
In February 1997, the Financial Accounting Standards Board issued SFAS
No. 128, "Earnings Per Share," which will change the reporting of earnings
per share effective in the fourth quarter of 1997. Basic earnings per share
will not include stock options as common stock equivalents and will be higher
than previously reported primary earnings per share. Diluted earnings per
share will equal previously reported primary earnings per share under the
Company's current capital structure.
(2) DISCONTINUED OPERATIONS
NHP FINANCIAL SERVICES
On April 19, 1997, the Company's Board of Directors approved a plan to
distribute shares of NHP Financial Services (formerly the Company's Financial
Services business segment) to the Company's existing shareholders pursuant to
the terms of a Rights Agreement approved by the Board of Directors on that
date. Pursuant to the Rights Agreement, the Company will issue to its
stockholders rights to receive a distribution of one-third of a share of NHP
Financial Services for each right at the earlier of the time of the AIMCO
merger discussed in Note 3, or on December 1, 1997, if the AIMCO merger has
not occurred by that date. NHP Financial Services is also expected to issue
shares constituting approximately 11.5% of its common equity in a private
transaction on or shortly after the distribution to the Company's
stockholders. The Company has received a commitment, subject to certain
conditions, to purchase 546,498 shares of NHP Financial Services for an
aggregate purchase price of $5 million on or shortly after the distribution,
which is equivalent to $9.15 per share. The distribution is conditioned on
the consent of lenders under the Company's credit agreement. As a result of
the distribution, each holder of shares of the Company's common stock at the
time of the AIMCO merger will receive shares in NHP Financial Services in
addition to the merger consideration described in Note 3. The Company
anticipates that the rights will be distributed approximately May 9 to
stockholders of record of the Company on May 2, 1997.
Following the distribution of shares of NHP Financial Services, NHP
Incorporated and NHP Financial Services will operate independently and
neither will have any stock ownership in the other. In conjunction with the
distribution of shares of NHP Financial Services, NHP Incorporated and NHP
Financial Services will enter into a separation agreement that will govern
their ongoing relationship. The separation agreement will provide, in part,
for NHP Financial Services to assume all liabilities relating to the business
and operations of NHP Financial Services prior to distribution (except for
the costs of the distribution) and to indemnify NHP Incorporated for such
liabilities and all expenses and costs and losses related thereto, all on
terms reasonably acceptable to AIMCO. In addition, the separation agreement
will also provide for the settlement, at or prior to the distribution of
shares, of any intercompany amounts owed by NHP Financial Services to NHP
Incorporated through retention by NHP Financial Services of Excess Free Cash
flow, as defined by the AIMCO merger agreement, generated by NHP Incorporated
during 1997, through the date of the AIMCO merger, and/or repayment of the
remaining amounts by NHP Financial Services. The intercompany balance due
from NHP Financial Services to NHP Incorporated, of approximately $9 million
as of April 1997, relates primarily to advances to NHP Financial Services
related to the Proctor and Askew acquisitions, which are discussed further in
Notes 4 and 17, respectively, and intercompany cash tax allocations.
The operating results of NHP Financial Services for the nine-month period
since acquisition are summarized below (in thousands):
April 1 - December 31,
1996
----------------------
Gross Revenue $24,848
-------
-------
Income before taxes $ 2,299
Provision for income taxes (1,144)
-------
Net income $ 1,155
-------
-------
Net income per share $ .09
-------
-------
The assets and liabilities of NHP Financial Services as of December 31,
1996, are summarized below (in thousands):
1996
-------
Current assets $51,060
Noncurrent assets 34,304
-------
Total assets $85,364
-------
-------
Current liabilities $52,254
Noncurrent liabilities 9,710
-------
Total liabilities 61,964
-------
Net assets of discontinued operations $23,400
-------
-------
DISCONTINUED REAL ESTATE OPERATIONS
On June 14, 1994, the Company's Board of Directors approved a plan (the
"Plan") to dispose of the Company's real estate operations immediately prior
to an IPO of the Company's common stock. On August 18, 1995, the Company
completed its IPO and sold the Real Estate Companies. In consideration for
the sale of the Real Estate Companies, Demeter, Capricorn and Mr. Heller
canceled $9.1 million of indebtedness owed to them by the Company. The net
liabilities of the Real Estate Companies as of the date of the sale were $4.6
million and transaction costs related to the sale, including taxes of $2.3
million, were $4.8 million, which resulted in the Company recording a net
gain on the sale of the Real Estate Companies of $8.9 million. The gain was
recorded as a direct adjustment to additional paid-in capital.
The Real Estate Companies' operations consist primarily of the ownership
of general and limited partnership interests (generally 1% to 5%) in
approximately 700 affordable and conventional multifamily housing properties
located in 38 states, the District of Columbia and Puerto Rico. The Real
Estate Companies also own majority interests in several real estate
partnerships (primarily multifamily housing properties), interests in joint
ventures (primarily land and single family housing developments) and a
"captive" insurance company which are consolidated with the accounts of the
Real Estate Companies for financial reporting purposes.
In addition to managing the majority of the properties for which the Real
Estate Companies act as general partner, the Company provides asset
management, finance, accounting and tax services to the Real Estate Companies
on a cost-reimbursable basis. For further discussion of transactions with the
Real Estate Companies, see Note 13.
F-21
<PAGE>
The operating results of the discontinued real estate operations are
summarized below (in thousands):
Year Ended December 31,
----------------------------------
1996 1995 1994
---- ---- ----
Gross revenues - $23,874 $35,121
Net income (loss) before
extraordinary item, net of minority
interest and net of an income tax
benefit of $1,309 for 1995 and $0
for 1994 - $(1,963) $ 7,490
The net income (loss) before extraordinary item includes $1.0 and $12.0
million for the years ended December 31, 1995 and 1994, respectively, of
gains resulting from sales and foreclosures of properties owned by real
estate partnerships for which the Real Estate Companies act as general
partner.
(3) CHANGE IN CONTROL AND MERGER AGREEMENT
On April 21, 1997, the Company announced that it had entered into a
definitive Merger Agreement pursuant to which the Company will be acquired by
Apartment Investment and Management Company ("AIMCO"), a real estate
investment trust whose shares are traded on the New York Stock Exchange
(AIV-NYSE). Upon completion of the merger, each of the Company's stockholders
will receive for each share of Company common stock, at the stockholder's
election, either (i) a combination of .37383 shares of AIMCO common stock and
$10.00 cash per share of Company common stock, or (ii) .74766 shares of AIMCO
common stock. The merger is conditioned on the approval of the Company's
stockholders and AIMCO stockholders, the completion of the transactions
between AIMCO and the majority stockholders of the Company described below,
and customary state and federal regulatory and other approvals.
AIMCO has separately entered into a Stock Purchase Agreement with Demeter
and Capricorn, who together hold a majority of the outstanding shares of the
Company's common stock. Pursuant to the Stock Purchase Agreement, AIMCO will
acquire all of the Company's common stock currently held by Demeter and
Capricorn. AIMCO will pay Demeter $20 in cash per share for 50% of the
Company shares held directly and indirectly by Demeter. For the remainder of
Demeter's shares and Capricorn's shares, AIMCO will pay .74766 shares of
AIMCO common stock per share of Company common stock. The closing under the
Stock Purchase Agreement is expected to occur in May 1997. Upon completion of
AIMCO's purchase of shares held by Demeter and Capricorn, AIMCO will hold a
majority of the issued and outstanding shares of the Company's common stock.
The merger will, however, require approval by two-thirds vote of all shares
of Company common stock held by persons other than AIMCO. Stockholder
meetings to approve the merger are expected to be held in late summer.
The Company has also been informed that AIMCO is negotiating a definitive
agreement with Demeter and Capricorn to acquire interests in certain real
estate properties owned or controlled by the Real Estate Companies, which are
controlled by Demeter and Capricorn, most of which properties are managed by
the Company pursuant to a long-term property management contract. Both the
Company's and AIMCO's obligations to complete the merger are conditioned on
signing the definitive agreement relating to the sale of real estate
interests and the management agreement remaining in effect. As consideration
for AIMCO's executing the Merger Agreement, the Company has waived, effective
May 3, 1997, its right of first refusal to purchase the real estate being
sold to AIMCO, subject to the condition that a definitive real estate
agreement be signed by AIMCO and Demeter by May 31 on terms substantially in
accordance with those described to the Company's Board of Directors.
(4) ACQUISITIONS AND NEW BUSINESS
CONTINUING OPERATIONS
GOLDBERG ACQUISITION
As of July 12, 1996, the Company, directly and through subsidiaries,
acquired the long-term management rights and certain notes receivable from
two Florida rental retirement communities as well as all of the outstanding
stock of Preferred Home Health, Inc. (the "Goldberg Acquisition"). In
addition, the Real Estate Companies acquired certain other notes receivable
from one of the properties and subsequently acquired all of the issued and
outstanding stock of the corporate general partners of the limited
partnership owners of the two properties. The Company and the Real Estate
Companies acquired these assets from affiliates of the Stephen A. Goldberg
Company of Washington, D.C. and certain other individuals. The cost of the
Company's portion of the acquisition, including transaction costs, was
approximately $16.3 million in cash and $4.0 million in long-term notes. The
purchase price was funded through additional borrowings under the Company's
revolving credit facility. The transaction was accounted for under the
purchase method of accounting. All assets acquired were recorded at their
estimated fair value. The excess of the purchase price over the fair value of
the net assets acquired was approximately $6.2 million and has been recorded
as goodwill. Preferred Home Health, Inc. is a provider of home health care
services to residents of multifamily rental retirement communities.
F-22
<PAGE>
GUILFORD
The Real Estate Companies completed the Guilford Acquisition in January
1996, by which the Real Estate Companies acquired the general partnership
interests and certain limited partnership interests in partnerships that own
14 properties containing 2,995 units. In conjunction with this acquisition by
the Real Estate Companies, the Company paid the Real Estate Companies $2.6
million ($1.5 million of which was paid in December 1995) to enter into
property management contracts with each property for a period of four to five
years, commencing in December 1995.
SOUTHPORT
In December 1995, the Real Estate Companies entered into a binding
agreement to acquire from Southport Financial Corporation the general partner
interests in partnerships that own 14 properties containing 2,140 units. The
Company began managing 12 of these properties containing 1,857 units in
November 1995 and began managing the remaining two properties containing 283
units in early 1996. The Company acquired the right to manage all 14 of the
Southport properties for $4.0 million, approximately $3.0 million of which
will be paid in various quarterly installments through the year 2000. The
Company manages the Southport properties pursuant to long-term contracts
terminable only for cause, and will have a right of first refusal with
respect to the sale of any of these properties or the Real Estate Companies'
general partnership interests in partnerships owning these properties.
RESCORP
On October 31, 1995, the Company acquired from Rescorp Realty, Inc. and
transferred to the Real Estate Companies the stock of entities owning the
general partnership interests in 11 properties. The Company manages these
properties pursuant to long-term contracts terminable only for cause, and has
a right of first refusal with respect to the sale of any of these properties
or the Real Estate Companies' general partnership interests in partnerships
owning these properties. The Company also entered into short-term property
management contracts with respect to four other properties, which are owned
by unaffiliated owners. The 15 properties have an aggregate of 2,578 units.
The Company paid Rescorp approximately $2.4 million in connection with the
acquisition, and transferred the general partnership interests to the Real
Estate Companies in exchange for the Real Estate Companies assuming the cost
and responsibilities of the general partner.
HALL
In February 1995, the Company and the Real Estate Companies substantially
completed the Hall Acquisition. In the Hall Acquisition, the Company and the
Real Estate Companies acquired, for $12.5 million (of which $4.0 million was
allocated to management rights), a 50% common equity interest in a joint
venture which, in turn, owns an interest in a portfolio of 32 apartment
properties containing 8,028 units and the associated property management
rights. Each property is owned by a limited partnership, the managing general
partner of which is an affiliate of the Real Estate Companies. As managing
general partner, each of these affiliates has entered into a management
contract with the Company having a term coinciding with the term of the
current financing of the properties, or approximately 5.75 years.
CONGRESS
On December 31, 1994, the Company and the Real Estate Companies entered
into a binding agreement to purchase for $6.7 million from Congress Realty
Companies the general partner interests, property management rights and
rights to certain receivables related to a 13-property portfolio containing
4,301 units. The acquisition was accounted for as a 1994 transaction using
the purchase method of accounting. Substantially all of the purchase price
was paid in January 1995.
See also Note 17 for discussion of 1997 acquisitions.
F-23
<PAGE>
DISCONTINUED OPERATIONS
NHP FINANCIAL SERVICES
As previously discussed, as of April 1, 1996, NHP Incorporated acquired
NHP Financial Services, for consideration of approximately $21 million in the
form of $16.8 million in cash and 210,000 shares of the Company's common
stock. The transaction has been accounted for under the purchase method of
accounting. All assets acquired were recorded at their estimated fair value
which resulted in recording an identifiable intangible asset of approximately
$19.1 million related to acquired servicing rights. The excess of the
purchase price over the fair value of the net assets acquired was
approximately $5.0 million and has been recorded as goodwill. The goodwill is
being amortized over seven years. The acquired servicing rights are being
amortized over periods up to seven years. All purchase price allocations have
been recorded by NHP Financial Services and are included in the net assets of
discontinued operations on the Consolidated Balance Sheet.
At closing, the 210,000 shares of the Company's common stock were placed
in an escrow account as security for the satisfaction of claims by the
Company under the stock purchase agreement against the former owner of NHP
Financial Services (the "Seller"). Claims will be paid, subject in certain
instances to a deductible, from the escrow by returning the number of shares
to the Company equal to the value of the claim, as determined by the then
current market value of the Company's common stock. 105,000 shares were
released to the Seller on April 1, 1997. One-half of the shares remaining in
the escrow will be released to the Seller on April 1, 1998, with the remaining
shares to be released to the Seller on April 1, 1999.
PROCTOR & ASSOCIATES
As of December 31, 1996, Washington Mortgage Financial acquired
Detroit-based Proctor & Associates ("Proctor"), the 37th largest commercial
mortgage banking firm in the nation, according to June 30, 1996, data
published by the Mortgage Banking Association, for $3.7 million. Included in
the transaction is Proctor's $1.1 billion loan servicing portfolio of
multifamily, retail, and office building mortgages, as well as the firm's
fifteen active correspondent relationships with life insurance companies.
Proctor originated nearly $180 million in commercial mortgage loans in 1996.
The purchase has been accounted for under the purchase method of accounting
by Washington Mortgage Financial. All assets acquired were recorded at their
estimated fair value. The excess of the purchase price over the fair value of
the net assets acquired was $3.1 million and has been recorded as goodwill by
Washington Mortgage Financial and is included in net assets of discontinued
operations on the Consolidated Balance Sheet.
AMERICAN CAPITAL RESOURCE, INC.
On May 13, 1996, WMF/Huntoon Paige, a subsidiary of Washington Mortgage
Financial, completed the purchase of a portion of the loan production
pipeline, as well as certain other assets, of American Capital Resource, Inc.
("ACR") for approximately $2.2 million plus potential future payments based
on realization of the pipeline through August 1997. The acquisition has been
accounted for under the purchase method of accounting. In addition, during
1996 WMF/Huntoon Paige also purchased the servicing rights to various loans
from ACR for a total of $2.0 million.
(5) INVESTMENT IN REAL ESTATE HELD FOR SALE
On May 16, 1996, the Company acquired 12 multifamily properties
containing 2,905 apartment units, including the right to manage the units on
a long-term basis, from affiliates of Great Atlantic Management, Inc. for a
purchase price (including transaction costs) of approximately $86.8 million
(the "Great Atlantic Acquisition"), in the form of approximately $71.2
million in third-party nonrecourse debt and $15.6 million in cash. The
Company intends to hold this investment in real estate only until such time
as a third-party investor acquires the ownership interests in the properties
and, accordingly, the net investment, less amounts allocated to purchased
management contracts, is recorded on the Consolidated Balance Sheet at the
lower of carrying value or fair value less estimated cost to sell. 1996 earnings
from these properties since the date of acquisition, excluding depreciation, was
$0.1 million. The recognition of the Company's pro rata share of these earnings
increased the Company's investment. This increase was offset by the
establishment of a
F-24
<PAGE>
valuation allowance to reduce the recorded investment to the lower of
carrying value or fair value less estimated cost to sell which resulted in no
net income being recognized related to these properties. Upon disposition of
its ownership interests, the Company intends to retain the long-term rights
to manage the properties.
(6) PROPERTY, EQUIPMENT AND CAPITALIZED SOFTWARE
Property, equipment and capitalized software consist of the following (in
thousands):
<TABLE>
<CAPTION>
December 31,
-------------------------
1996 1995
---- ----
<S> <C> <C>
Property and equipment $ 6,315 $ 3,393
Leasehold improvements 2,347 268
Capitalized software 4,112 1,642
------- --------
12,774 5,303
Less accumulated depreciation and amortization 2,359 1,780
------- --------
$10,415 $ 3,523
------- --------
------- --------
</TABLE>
(7) ACCRUED EXPENSES
Accrued expenses consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
-------------------------
1996 1995
---- ----
<S> <C> <C>
Accrued personnel and payroll costs $ 8,839 $ 7,990
Other 2,613 2,011
------- -------
$11,452 $10,001
------- -------
------- -------
</TABLE>
(8) LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
-------------------------
1996 1995
---- ----
<S> <C> <C>
Lines of credit:
$75 million Credit Facility $57,000 $23,000
Notes payable - Goldberg 4,000 -
Notes payable - Southport (net of unamortized
discount of $364 and $42 in 1996 and 1995,
respectively) 2,184 195
Note payable to Oxford 143 495
------- -------
63,327 23,690
Less current portion (720) (412)
------- -------
Long-term debt $62,607 $23,278
------- -------
------- -------
</TABLE>
CREDIT FACILITY - CONTINUING OPERATIONS
In August 1995, the Company entered into a $75.0 million, three-year
unsecured revolving credit facility (the "Credit Facility") with a group of
banks. At the end of two years, the Company may extend the Credit Facility
(as a revolving facility) for a fourth year or may convert it at the end of
the second year to a two-year term loan with equal quarterly installments
based on a five year amortization schedule and the remaining balance
(approximately 60%) due at the end of the two-year term. Availability under
the Credit Facility is subject to the Company's compliance with
F-25
<PAGE>
various financial ratios, operating covenants and other customary conditions.
The Credit Facility restricts the payment of dividends by the Company unless
the Company's ratio of income from continuing operations before interest,
income taxes, depreciation and amortization ("EBITDA") to interest expense is
greater than 3 to 1. In 1996, interest on the Credit Facility was equal to
175 basis points over the London Interbank Offered Rate ("LIBOR") in effect
from time to time. In 1996, the Credit Facility also required the payment of
a commitment fee of 37.5 basis points per annum on the unused portion of the
Credit Facility. During 1996, the Credit Facility required that any other
borrowings be subordinated to the Credit Facility except up to $10 million of
borrowings made in connection with the acquisition of assets that will result
in additional management rights for the Company, Washington Mortgage
Financial's Warehouse Line (described below), and any indebtedness of
Washington Mortgage Financial incurred in the acquisition of mortgage loans
or mortgage servicing rights. As of December 31, 1996, the Company had
outstanding $6.2 million of additional unsubordinated borrowings from third
parties. The Credit Facility limits the amount of loans or other advances by
the Company to the Real Estate Companies to a total of $10 million. At
December 31, 1996, $40 thousand was due directly from the Real Estate
Companies. In February 1997, the terms of the Credit Facility were amended.
See Note 17 for discussion of the changes in significant terms.
At December 31, 1996, the Company classified all borrowings under the
Credit Facility due within one year as long-term. The Company has both the
intent and the ability, through the Credit Facility, to refinance these
amounts on a long-term basis.
LONG-TERM DEBT AND LINES OF CREDIT- DISCONTINUED OPERATIONS
The following is a discussion of the long-term debt and lines of credit
related to NHP Financial Services (formerly the Company's Financial Services
business segment). Any amounts outstanding as of December 31, 1996, related
to these items are included in the net assets of discontinued operations on
the Consolidated Balance Sheet.
During the third quarter of 1996, Washington Mortgage Financial renegotiated
the terms of its existing warehouse line of credit (the "Warehouse Line"), which
is used for the purpose of originating loans. The Warehouse Line was increased
from $80 million to $150 million. The interest rate on the Warehouse Line was 1
to 1 1/2 percent during 1996 to the extent compensating balances are maintained
or LIBOR plus 1 to 1 1/2 percent for amounts borrowed in excess of compensating
balances. The Warehouse Line is secured by mortgage loans held for sale and is
repaid upon sale of the mortgage loans. The Warehouse Line expires in August
1997, at which time the Company expects to extend it or replace it with a
similar line of credit. As of December 31, 1996, Washington Mortgage Financial
had drawn $39.9 million on the Warehouse Line.
Washington Mortgage Financial has an additional warehouse agreement
providing $15 million of revolving credit at 1 1/2 to 1 5/8 percent to the
extent compensating balances are maintained and the prime rate for amounts
borrowed in excess of compensating balances. As of December 31, 1996,
Washington Mortgage Financial had no amounts outstanding under this line of
credit. Interest is payable monthly. This warehouse line of credit is secured
by mortgage loans held for sale and is paid upon sale of the mortgage loans.
Washington Mortgage Financial has a separate line of credit which was used
exclusively for acquisition of mortgage servicing rights (the "Servicing
Acquisition Line"). The interest rate on the Servicing Acquisition Line in
1996 was 3 to 3 1/2 percent to the extent compensating balances are
maintained or LIBOR plus 3 to 3 1/2 percent for amounts borrowed in excess of
compensating balances. In October 1996, the Servicing Acquisition Line was
converted to a term loan which is to be repaid in quarterly installments,
based on a 10-year amortization schedule, with the remaining balance due in
June 2001. The Servicing Acquisition Line is collateralized by servicing
rights relating to loans with an approximate unpaid principal balance of $1.1
billion. The original commitment amount of the Servicing Acquisition Line was
$10 million and as of December 31, 1996, Washington Mortgage Financial had
drawn $6.2 million on this line. Because this line has been converted to a
term loan, Washington Mortgage Financial cannot borrow any additional amounts
under this line.
Washington Mortgage Financial also has a revolving credit agreement
providing $10 million of revolving credit to be used for servicing
acquisitions or working capital advances (the "Working Capital Line").
Interest on the Working Capital Line is 3 1/2 percent to the extent
compensating balances are maintained or LIBOR plus 3 1/2
F-26
percent for amounts borrowed in excess of compensating balances. The Working
Capital Line is renewable annually through June 2001 and requires monthly
interest payments. Any principal balance outstanding at June 2001 would be
converted to a term loan due in quarterly installments through June 2006. The
Working Capital Line is collateralized by the same assets as the Servicing
Acquisition Line. As of December 31, 1996, Washington Mortgage Financial had
no amounts outstanding under the Working Capital Line.
Washington Mortgage Financial has an additional unsecured line of credit
agreement available for working capital purposes providing for $0.5 million
of revolving credit. The interest rate on this line of credit is the prime
rate and all borrowings must be paid off annually with interest payments due
monthly. At December 31, 1996, Washington Mortgage Financial had no amounts
outstanding under this line of credit.
NOTES PAYABLE - GOLDBERG
As a portion of the consideration in the Goldberg Acquisition, the Company
issued various notes payable totaling $4.0 million. The notes bear interest
at 9.5% per annum and require quarterly interest payments with the principal
due at maturity, July 12, 2006.
NOTES PAYABLE - SOUTHPORT
In conjunction with the Real Estate Companies' purchase from Southport
Financial Corporation of the general partner interests in partnerships that
own 14 properties containing 2,140 units, the Company completed its
acquisition of the management rights for these properties. As consideration
for the acquisition of the management rights, the Company issued various
non-interest bearing notes in 1996 and 1995 with a total face value of $3.0
million which are due in various quarterly installments through the year
2000. These notes were recorded at $2.5 million, net of an unamortized
discount of $0.5 million based on an imputed interest rate of 9.5%.
REPAYMENTS OF DEBT
Upon the completion of the IPO in August of 1995, the Company drew $20.0
million on the Credit Facility and used those funds together with the net
proceeds of the IPO as follows: (i) $54.7 million was used to repay in full
the Company's indebtedness under its previous credit facility, which was
simultaneously terminated by the Company; (ii) $7.0 million was used to repay
a note to a former institutional shareholder of the Company; and (iii) $5.5
million was used to repay indebtedness to Demeter, Capricorn, and Mr. Heller.
The remaining proceeds were added to the Company's working capital.
In consideration for the sale of the Real Estate Companies in August of
1995, Demeter, Capricorn and Mr. Heller canceled $9.1 million of
indebtedness owed to them by the Company (for further discussion, see Notes 2
and 13).
F-27
<PAGE>
OTHER
The following table provides more detail on interest rates (including
commitment fees) and borrowings made under the Company's various credit
agreements (dollar amounts in thousands):
Year Ended December 31,
--------------------------
1996 1995 1994
---- ---- ----
Continuing Operations:
$75 million Credit Facility (a):
Weighted average interest rate at
period-end 7.61% 8.40% 6.42%
Maximum month-end borrowings during
the period $57,000 $58,466 $57,126
Average borrowings during the period $43,917 $41,457 $54,454
Weighted average interest rate, during
the period 7.70% 9.03% 6.47%
Discontinued Operations:
$150 million Warehouse Line:
Weighted average interest rate at
period-end 1.00% - -
Maximum month-end borrowings during
the period $52,885 - -
Average borrowings during the period $43,327 - -
Weighted average interest rate,
during the period 1.17% - -
$10 million Servicing Acquisition Line:
Weighted average interest rate at
period-end 3.00% - -
Maximum month-end borrowings during
the period $ 9,960 - -
Average borrowings during the period $ 8,884 - -
Weighted average interest rate, during
the period 3.17% - -
$15 million Warehouse Line:
Weighted average interest rate at
period-end 1.50% - -
Maximum month-end borrowings during the
period $ 7,100 - -
Average borrowings during the period $ 3,765 - -
Weighted average interest rate, during
the period 1.50% - -
(a) Includes the Company's $75 million Credit Facility and/or any prior
credit agreements in 1995 and 1994.
Aggregate annual maturities of long-term debt for the Company's
continuing operations as of December 31, 1996, are $0.7, $0.6, $57.7 and $0.3
million for the years 1997 through 2000, respectively. For the purposes of
calculating aggregate maturities, the Credit Facility is assumed to be
extended for a fourth year but the Company has not yet determined what option
it will choose under the terms of the Credit Facility. Aggregate annual
maturities of long-term debt for the Company's discontinued operations as of
December 31, 1996, which excludes the Warehouse Line, are $1.0 million per
year for the years 1997 through 2000 and $2.2 million for the year 2001.
(9) INCOME TAXES
The Company files a consolidated Federal income tax return, and in certain
states, consolidated state income tax returns. As of December 31, 1994, the
Company had net operating loss carryforwards (NOLs) of approximately $140
million which were attributable primarily to partnership losses related to the
Real Estate Companies. In connection with the sale of the Real Estate Companies
(discontinued operations), the Company utilized approximately $60 million of its
NOLs, and the remaining NOLs were allocated between the Company and the Real
Estate Companies. At December 31, 1996, the Company estimates that it has
remaining approximately $55 million of gross unused NOLs for Federal tax
purposes which expire in varying amounts between 2004 and 2008. Realization of
the NOLs is dependent on generating sufficient taxable income prior to the
expiration of the NOLs. Although realization is not assured, management believes
it is more likely than not that all of the deferred tax asset related to the
NOLs will be realized. Therefore, upon the sale of the Real Estate Companies in
the third quarter of 1995, the Company reduced its valuation allowance as those
entities historically generated operating losses, while continuing operations
have historically generated operating income.
F-28
<PAGE>
The amount of deferred tax asset considered realizable, however, could
be reduced in the near term if estimates of future taxable income during the
carryforward period are reduced. Furthermore, if the Internal Revenue Service
were to determine that the consideration received by the Company in the sale
of the Real Estate Companies was less than the fair market value of the
assets transferred or that other valuations of assets made in connection with
the sale were inaccurate, the amount of the net operating loss carryforwards
available to the Company could be reduced, thus increasing the Company's
future federal income tax liability. The ability of the Company to utilize
NOLs may also be limited in the future if an "ownership change" within the
meaning of Section 382 of the Internal Revenue Code of 1986, as amended, were
deemed to occur. Such an ownership change may be deemed to occur, for
example, if the Company engages in certain transactions involving the
issuance of shares of common stock, including the issuance of a sufficient
number of shares of common stock in connection with an acquisition or
otherwise. If an ownership change were to occur, Section 382 would impose an
annual limit on the ability of the Company to utilize NOLs. The amount of
NOLs is, in any event, subject to uncertainty until such time as they are
used to offset income as their validity is not reviewed by the Internal
Revenue Service until such time as they are utilized. The sale of Company
stock, discused in Note 3, by Demeter and Capricorn to AIMCO, if completed,
would trigger the Section 382 limitations.
The Company expects to recognize capital gain for federal income tax
purposes as a result of the distribution of the rights combined with the
later distribution of shares of NHP Financial Services, discussed in Note 2.
The amount of gain recognized by the Company will be the excess of the fair
market value of NHP Financial Services on the date of the distribution of the
rights, over the Company's tax basis in NHP Financial Services. The Company
expects to have regular federal NOLs available in sufficient amount to offset
the gain under the regular federal income tax, but does not expect to have
sufficient alternative minimum tax NOLs available to offset the gain under
the alternative minimum tax.
The following table summarizes the consolidated tax effect related to
the Company's deferred tax assets and liabilities (in thousands):
December 31,
---------------
1996 1995
---- ----
Deferred tax assets:
Net operating loss carryforwards $19,737 $26,904
Tax credit carryforwards 1,116 572
Vacation and incentives 470 32
Other temporary differences between book and tax 1,236 349
------- -------
Total deferred tax assets 22,559 27,857
Valuation allowance for deferred tax assets (7,547) (5,020)
------- -------
Deferred tax assets 15,012 22,837
Deferred tax liabilities:
Amortization of purchased management contracts 476 847
Management fees receivable 567 1,623
Other temporary differences between book and tax 171 -
------- -------
Total deferred tax liabilities 1,214 2,470
------- -------
Net deferred tax asset $13,798 $20,367
------- -------
------- -------
The Company did not record a tax provision during the first and second
quarter of 1995, therefore, a year-to-date tax provision was recorded in the
third quarter of 1995. A reconciliation of income tax expense computed at the
statutory Federal and state rates to the provision (benefit) for income taxes
included in the Consolidated Statements of Operations is as follows (in
thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
1996 1995 1994
------- -------- --------
<S> <C> <C> <C>
Federal income tax provision at the Federal statutory
rate - 35% in 1996 and 1995, 34% in 1994 $ 6,105 $ 4,834 $ 5,608
State income tax provision, net of Federal income tax
benefit-5% 872 690 924
Change in net deferred tax asset (2,527) - -
Change in valuation allowance 2,527 (23,326) (6,532)
-------- -------- --------
Provision (benefit) for income taxes $ 6,977 $(17,802) $ -
-------- -------- --------
-------- -------- --------
</TABLE>
F-29
<PAGE>
In conjunction with the preparation and filing of the Company's 1995
Federal tax return in late 1996, the Company identified certain items which
increased the Company's deferred tax asset due primarily to differences
between estimates of items made at the time of the sale of the Real Estate
Companies and actual amounts reported in the Company's tax return. Also as
part of this analysis, the Company updated its evaluation of all of its
deferred tax assets to determine if, in accordance with SFAS 109, the
realization of these assets was more likely than not. Accordingly, the
Company recorded an increase in the valuation allowance to offset the
increase in the deferred tax asset.
Prior to 1995, a valuation allowance equal to the net deferred tax asset
was established due to the uncertainty, on a consolidated basis, surrounding
the Company's ability to generate sufficient taxable income in future years
to utilize the NOLs. The net change in the valuation allowance in 1994,
reduced the annual provision for income taxes to zero. The components of the
benefit (provision) for income taxes for 1996 and 1995 is summarized as
follows (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Current provision $ 407 $ 608 $ -
Deferred provision 6,570 4,916 -
Change in net deferred tax asset (2,527) - -
Change in valuation allowance for deferred tax
asset 2,527 (23,326) -
-------- -------- -------
Provision (benefit) for income taxes $ 6,977 $(17,802) $ -
-------- -------- -------
-------- -------- -------
</TABLE>
(10) SHAREHOLDERS' EQUITY
AUTHORIZED STOCK
The authorized capital stock of the Company consists of 25,000,000 shares
of Common Stock, $.01 par value, of which 12,586,629 shares were issued and
outstanding as of December 31, 1996.
TREASURY STOCK
In February 1993, effective as of December 31, 1992, the Company entered
into a Stock Purchase Agreement (the "Stock Agreement") with The NHP
Foundation (the "Foundation"), a non-profit organization formed to provide
assisted housing to low-income families. The Stock Agreement provided for
reimbursement to the Company for services provided to the Foundation via
redemption of shares, at approximately $10.56 per share, of the Company's
common stock held by the Foundation. In 1994, the Foundation exchanged 46,500
shares in satisfaction of $0.5 million due the Company for services rendered
to the Foundation in 1994. In an unrelated transaction in 1994, the Company
purchased 30,000 shares at a price of $12 per share, from a member of
management upon his resignation from the Company. All shares were retired by
the Company, as received.
On January 27, 1995, 331,950 shares of Company stock owned by the
Foundation were purchased by other current Company shareholders.
Additionally, on May 1, 1995, 31,250 shares of Company stock were repurchased
from the Foundation at a price of $12 per share, effectively terminating the
Stock Agreement.
During the third quarter of 1996, 2,046 shares of the Company's common
stock were received by the Company in partial payment for the exercise of
certain options and were recorded as treasury stock. The shares were
subsequently retired in the fourth quarter of 1996.
AUTHORIZATION OF REPURCHASE OF SHARES
On January 7, 1997, the Company's Board of Directors approved the
repurchase of up to 750,000 shares of the Company's common stock over a
period extending through June of 1998. The Company will acquire shares from
time to time, depending on market conditions and subject to regulatory and
legal restrictions. The Company expects to finance the stock repurchases
through a combination of internally generated cash flows and its credit
facility.
F-30
<PAGE>
(11) STOCK OPTION PLANS
The Company 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. In accordance
with APB 25, because the exercise price of the Company's employee stock
options equals the market price of the underlying stock on the date of grant,
no compensation expense is recognized.
The Company has a non-qualified stock option plan (the "1990 Plan") under
which options to purchase shares of the Company's common stock have been
granted to key employees. Options were granted at the fair market value of
the shares on the date of grant and become exercisable cumulatively over a
five-year period beginning one year after date of grant. As of December 31,
1996 and 1995, 310,000 and 405,000 options, respectively, were outstanding
under the 1990 Plan. No further options may be granted under the 1990 Plan.
On February 8, 1995, the Company's Board of Directors extended the
exercise period of the options granted under the 1990 Plan from five to ten
years. This resulted in a new measurement date for the options, and in the
first quarter of 1995, compensation expense of $0.5 million was recognized by
the Company, of which $0.1 million was allocated to the Real Estate
Companies. Additionally, on March 3, 1995, as part of a severance agreement,
the Company agreed to extend a departing employee's time to exercise his 1990
Plan options through February 28, 1997. Related compensation expense of $0.1
million was recorded in the first quarter of 1995. The corresponding credit
for both of these transactions was to additional paid-in capital.
On February 8, 1995, the Company's Board of Directors approved the 1995
Stock Option Plan (the "1995 Plan"). The 1995 Plan is a qualified stock
option plan under which a maximum of 1,200,000 options to purchase shares of
the Company's common stock may be granted to employees. In May 1996, the
Company's Board of Director's approved an amendment to the 1995 Plan, which
was subsequently approved by the stockholders of the Company in July 1996,
that increased the maximum number of options which can be granted under the
plan from 800,000 to 1,200,000. In February 1997, the Company's Board of
Directors approved an amendment to the 1995 Plan which allows for all options
issued under the 1995 Plan to become vested upon a change in control of the
Company. Any options granted under the 1995 Plan must have an exercise price
equal to the fair market value as of date of grant, become exercisable
cumulatively over a five-year period beginning one year after date of grant,
and must be exercised within ten years of the date of grant. As of December
31, 1996 and 1995, 386,250 and 228,750 options, respectively, remain
available to be granted under the 1995 Plan.
Effective with the consummation of the IPO, the Company granted Mr.
Heller non-qualified performance vesting options to purchase 120,000 shares
of common stock at $16.00. The options will vest in 10 years but are subject
to accelerated vesting under certain circumstances, including a change in
control of the Company.
Effective May 1, 1996, the Company granted non-qualified performance
vesting options to purchase up to 120,000 shares of common stock at $19.43
(fair market value at award date) to an executive vice president of the
Company. The options vest only if certain performance criteria are met and
expire April 30, 2001.
In conjunction with the distribution of shares of NHP Financial Services
to the Company's existing shareholders discussed in Note 2, all of the issued
and outstanding options to acquire Company common stock will be converted
into an option to receive the same number of shares of Company common stock
and an option to receive the number of shares of NHP Financial Services'
common stock the options holder would have been entitled to receive in the
distribution, if the option had been exercised immediately prior to the
distribution. In addition, the exercise price of the options will be adjusted
pro rata based on the assumed value at the date of the distribution of NHP
Financial Services shares.
The following table summarizes option activity for the years ended
December 31, 1996, 1995 and 1994.
1996 1995 1994
-------- -------- --------
Number of Shares Under Stock Options:
Outstanding at the beginning of year 1,096,250 443,750 537,500
Granted 492,500 711,250 -
Exercised (114,000) - (32,500)
Forfeited (130,000) (58,750) (61,250)
--------- --------- -------
Outstanding at the end of year 1,344,750 1,096,250 443,750
--------- --------- -------
--------- --------- -------
Stock options exercisable at the end of
the year 418,250 420,000 341,250
--------- --------- -------
--------- --------- -------
Weighted-average fair value of options
granted during the year $ 7.73 $ 5.38 N/A
--------- ---------
--------- ---------
F-31
<PAGE>
<TABLE>
<CAPTION>
1996 1995 1994
---------- --------- --------
<S> <C> <C> <C>
Price range of Stock Options:
Granted $17.28-$19.43 $13.00-$16.00 -
Exercised $10.56-$13.00 - $10.56
Forfeited $13.00 $10.56 $10.56
Outstanding $10.56-$19.43 $10.56-$16.00 $10.56
</TABLE>
The following table summarizes information about fixed-price stock
options outstanding at December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------------- -----------------------------
Number Weighted Weighted Number Weighted
Range of Outstanding Average Average Exercisable Average
Exercise Price at 12/31/96 Remaining Life Exercise Price at 12/31/96 Exercise Price
-------------- ----------- -------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
10.56 310,000 4 years 10.56 310,000 10.56
13.00 417,250 9 years 13.00 108,250 13.00
16.00 120,000 9 years 16.00 - 16.00
18.43 175,000 10 years 18.43 - 18.43
19.43 207,500 10 years 19.43 - 19.43
All Other 115,000 10 years 17.66 - 17.66
--------- -------
10.56 - 19.43 1,344,750 418,250
--------- -------
--------- -------
</TABLE>
Weighted average option exercise price information for the years
1996 and 1995 is as follows:
1996 1995
-------- --------
Outstanding at the beginning of year $ 12.43 $ 10.56
Granted $ 18.72 $ 13.51
Exercised $ 10.97 -
Forfeited $ 13.00 $ 11.39
Outstanding at the end of year $ 14.80 $ 12.43
The Company has adopted the disclosure-only provisions of SFAS 123,
"Accounting for Stock Based Compensation." Accordingly no compensation
expense cost has been recognized for the employee stock option plans. Had
compensation cost for the Company's employee stock option plans been
determined based on the fair value at the grant date for awards in 1995 and
1996 consistent with the provisions of SFAS No. 123, the Company's net income
and net income per common share would have been reduced to the pro forma
amounts indicated below (dollars in thousands, except per share amounts):
1996 1995
-------- --------
Net income - as reported $11,620 $29,250
Net income - pro forma $11,033 $29,055
Net income per common share - as
reported $ .91 $ 3.03
Net income per common share -
pro forma $ .87 $ 3.01
The effects of applying SFAS No. 123 in this pro forma disclosure are
not indicative of future amounts. SFAS No. 123 does not apply to awards prior
to 1995, and additional awards in future years are anticipated. For purposes
of this pro forma disclosure, fair value of each option grant is estimated on
the date of grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions used for grants in 1995 and 1996:
dividend yield 0.0%, expected volatility of 30.0%, risk-free interest rate of
6.33% and expected lives of 5 years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation models
require the input of
F-32
<PAGE>
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee 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.
(12) EMPLOYEE BENEFIT PLANS
Substantially all of Property Services' full-time off-site and on-site
employees with at least one year of continuous service are eligible to
participate in a 401(k), defined contribution retirement plan. The Company
also has a non-qualified supplemental executive retirement savings plan which
permits certain employees to defer salary that they would otherwise be
prohibited from deferring under the 401(k) plan due to IRS restrictions.
Under these plans, the employees may contribute up to 15% of their gross
compensation up to the maximum allowable by the Internal Revenue Code, to
various investment alternatives including, beginning in 1996, the Company's
common stock. The Company will match 50 percent of each employee's
contribution up to 6 percent of the employee's gross compensation. The plans
also allow the Company to make discretionary contributions. Company matching
contributions to the 401(k) plan vest as contributed. Company discretionary
contributions to the 401(k) plan vest 20 percent after the first year of
employment and an additional 20 percent in each subsequent year until fully
vested in the fifth year. In addition to the vesting provisions for the
401(k) plan, the executive retirement savings plan generally requires that a
participant not compete with the Company for a two-year period following
separation from the Company in order to vest in Company contributions. Total
net expense related to the Company's contributions to these plans, after
reimbursement from the partnerships for on-site employees, was $0.9, $0.8 and
$0.7 million for the years ended December 31, 1996, 1995 and 1994,
respectively. Approximately 19,100 shares of the Company's common stock was
held by the plans as of December 31, 1996.
(13) RELATED PARTY TRANSACTIONS
During 1994, the Company borrowed $3.9 million from certain shareholders
to purchase general partnership interests in properties which the Company
already managed. As of December 31, 1994, a total of $11.0 million was due to
shareholders, excluding accrued interest of $1.4 million. These notes were
due on demand, but only after repayment of all borrowings under the then
existing credit agreement, and had an interest rate of 13%. As discussed in
Note 8, a portion of the proceeds from the IPO along with amounts drawn on
the Credit Facility was used to repay $5.5 million of the shareholder notes,
including $2.4 million of interest. In addition, in consideration for the
sale of the Real Estate Companies in August 1995, certain shareholders
(Demeter, Capricorn and Mr. Heller) canceled $9.1 million of the Company's
shareholder notes.
One of the Company's directors is counsel to a law firm which provides
legal services to the Company. Amounts paid for legal services provided for
the Company by this firm were $0.1, $0.9 and $0.2 million, during the years
ended December 31, 1996, 1995 and 1994, respectively.
In November 1995, the Company issued 1,500 shares of stock to each of
the members of the Board of Directors other than Mr. Heller (total of 9,000
shares) as a portion of their 1995 and 1996 annual compensation.
In connection with the sale of the Real Estate Companies, the Company
and the Real Estate Companies entered into agreements (the "Intercompany
Agreements") which govern their ongoing relationship. Significant aspects of
the Intercompany Agreements include provisions whereby (i) the Company will
be selected to provide property management and related services for
properties in which the Real Estate Companies have a controlling interest,
subject to certain conditions, for an initial period of 25 years; (ii) upon
the disposal by the Real Estate Companies of properties or interests in
properties which the Company managed on August 18, 1995, the Real Estate
Companies will make a payment of up to 200%, subject to certain conditions,
of the annual fees the Company receives with respect to the property; (iii)
the Company will provide to the Real Estate Companies, at cost, certain
administrative services and advice regarding acquisition, financing, asset
restructuring, disposition and similar activities relating to investment in
multifamily properties, terminable on short notice by either party; (iv) the
Real Estate Companies and their equity holders have granted the Company a
right of first refusal with respect to any transactions resulting in a change
of control of the Real Estate Companies, as defined; (v) the Real Estate
Companies have indemnified the Company against
F-33
<PAGE>
any loss directly or indirectly caused by, relating to, based upon, arising
out of, or incurred in connection with the Company's ownership (as opposed to
management) of properties prior to, on and after August 18, 1995; (vi) the
Real Estate Companies will limit the Company's liability, by an agreed-upon
formula, for taxes arising from the sale of the Real Estate Companies. The
Intercompany Agreements may only be amended with the approval of the Real
Estate Companies and the Company. A majority of the members of the Board of
Directors of the Company having no interest in the Real Estate Companies must
approve such amendments if they involve a conflict of interest with directors
having an interest in the Real Estate Companies. In addition, the Board of
Directors has created a Conflicts Committee, consisting of directors who have
no direct or indirect financial interest in and are not affiliated with
entities having an interest in the Real Estate Companies, which monitors
dealings between the Company and the Real Estate Companies which may present
a conflict of interest.
Going forward, the Company will participate in additional acquisitions
with the Real Estate Companies primarily in the form of identifying and
negotiating acquisitions and providing other asset acquisition services to
the Real Estate Companies, acquiring rights to manage the properties through
the Intercompany Agreements or other arrangements, and paying that portion of
the acquisition costs allocable to the management rights. See Notes 4 and 17
for further discussion of acquisitions.
The Company was due directly from the Real Estate Companies $40 thousand
and $2.1 million as of December 31, 1996 and 1995, respectively. These
amounts are included in receivables on the Consolidated Balance Sheet.
(14) COMMITMENTS AND CONTINGENCIES
CONTINUING OPERATIONS
GUARANTEES
As of December 31, 1996, the Company was committed to performance
guarantees, loan guarantees and other guarantees totaling $8.3 million, which
relate primarily to transactions consummated by the Real Estate Companies
prior to their sale in August 1995. As discussed in Note 13 above, the Real
Estate Companies have indemnified the Company for any costs which might be
incurred by the Company related to these guarantees. In the opinion of
management, future calls, if any, on these guarantees are not expected to
have a material adverse effect on the Company's financial position or results
of operations. Demeter, Capricorn and Mr. Heller have agreed to provide a
line of credit to the Real Estate Companies in an aggregate amount of $5.5
million. The line of credit is available through August 1998 and is to be
used to satisfy the Real Estate Companies' indemnification obligations, if
any, to the Company.
LITIGATION
In the normal course of business, the Company is a party to various
legal actions and claims. In the opinion of management, based on advice of
counsel, the resolution of these actions and claims is not expected to have a
material adverse effect on the Company's financial position or results of
operations.
LEASES
The Company leases office space and equipment under noncancellable
operating leases. Most office leases provide for the pass-through of
increased operating expenses. In December 1995, the Company entered into a
six-year lease agreement for new office space in Vienna, Virginia. The
Company relocated its Washington, D.C. and Reston, Virginia offices to the
new Vienna location during the second quarter of 1996. The Company has sublet
its Reston facilities for the remainder of its lease, which expires in July
1998, at approximately its obligation under the prime lease. Net rent
expense, substantially all of which is minimum rentals under operating
leases, was $2.0, $1.8 and $2.1 million in 1996, 1995 and 1994, respectively.
1996 rent expense is stated net of sub-lease income. Future minimum rental
commitments, net of sub-lease income, under existing operating leases having
an initial or remaining noncancellable lease terms in excess of one year at
December 31, 1996, are as follows (in thousands):
F-34
<PAGE>
Lease Commitments
1997 $ 2,714
1998 2,527
1999 2,478
2000 2,574
2001 2,594
Thereafter 1,342
--------
Total $ 14,229
--------
--------
DISCONTINUED OPERATIONS
FANNIE MAE DUS PROGRAM
NHP Financial Services bears the Level I risk of loss associated with
the loans it services under the Fannie Mae Delegated Underwriting and
Servicing ("DUS") multifamily loan origination program. The Level I risk of
loss requires NHP Financial Services to bear a portion of the losses on
mortgages it originates under the program that does not exceed 20% of the
original balance of the loans. The unpaid principal balance of the Fannie Mae
DUS loan servicing portfolio was approximately at $776 million at December
31, 1996. The DUS loans are secured by first liens on the underlying
multifamily properties and are concentrated primarily in Texas, Nevada,
Arizona, Ohio and New York. No loans are delinquent as of December 31, 1996.
NHP Financial Services has provided a reserve for losses of $4.4 million
as of December 31, 1996, which included in net asset of discontinued
operations on the Consolidated Balance Sheet. This reserve represents
management's estimate of losses which may be incurred on loans underwritten
to date that are currently being serviced.
Under the DUS program, NHP Financial Services has established a $4.2
million irrevocable letter of credit on Fannie Mae's behalf to cover any loan
losses at December 31, 1996.
LOAN COMMITMENTS
At December 31, 1996, the NHP Financial Services had mandatory delivery
commitments in the amount of approximately $41.2 million to cover its
origination commitments and loans held for sale.
OTHER
In connection with the construction loan portfolio, NHP Financial
Services makes certain advances to borrowers. On FHA insured construction
loans, the NHP Financial Services advances construction funds pending
security holder purchases. Such advances amounted to approximately $4.2
million at December 31, 1996. NHP Financial Services is obligated to advance
another $258 million on construction loans administered at December 31, 1996.
In addition, NHP Financial Services makes voluntary advances under
certain of its servicing agreements pending receipt from the mortgagors and
the Department of Housing and Urban Development ("HUD") on applicable
subsidized loans. Such advances amounted to approximately $2.0 million at
December 31, 1996 and are included in net assets of discontinued operations
on the Consolidated Balance Sheet.
Related escrow funds, which represent borrowers' insurance, taxes and
replacement reserves, of approximately $228 million at December 31, 1996, are
on deposit in escrow bank accounts and are not included in the accompanying
Consolidated Balance Sheet. NHP Financial Services carries blanket bond
coverage of $5 million and errors and omissions coverage in the amount of $10
million.
F-35
<PAGE>
WAIVER OF FREDDIE MAC NON-COMPLIANCE
As of December 31, 1996, Washington Mortgage Financial was not in
compliance with a tangible net worth standard required by Freddie Mac for
continued servicing and future origination of loans held by Freddie Mac.
Washington Mortgage Financial's non-compliance with this standard results
from the accounting treatment of servicing rights in connection with its
acquisition by the Company and Freddie Mac's policy with respect to
recognition of servicing rights as a tangible asset, and does not reflect any
deterioration in the operating results or financial condition of Washington
Mortgage Financial. On March 26, 1997, Freddie Mac advised Washington Mortgage
Financial that Washington Mortgage Financial has financial strengths not
recognized in the tangible net worth calculation, and that Freddie Mac did
not consider Washington Mortgage Financial to be out of compliance as of
December 31, 1996, and effective for the remainder of 1997.
(15) FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments are as
follows (in thousands):
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
---------------------- ------------------------
Carrying Fair Carrying Fair
Value Value Value Value
-------- ----- -------- -----
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents $ 4,779 $ 4,779 $ 5,996 $ 5,996
Receivables 15,270 15,270 12,809 12,809
On-site cost reimbursement receivable 3,816 3,816 2,747 2,747
Notes Receivable 7,943 7,943 - -
Liabilities:
Accounts payable and accrued expenses 15,399 15,399 14,064 14,064
Accrued on-site salaries and benefits 3,816 3,816 2,747 2,747
Credit Facility
57,000 57,000 23,000 23,000
Other notes payable, including
current portion 6,327 6,327 690 690
Off-balance sheet instruments:
Financial guarantees - 8,285 - 8,637
</TABLE>
The estimated fair value of the financial instruments has been determined
based on pertinent information available to management at December 31, 1996.
The basic assumptions used and the estimates disclosed represent management's
best judgment of appropriate valuation methods. In certain cases, fair values
are not subject to precise quantification or verification and may change as
economic and market factors, and management's evaluation of those factors,
change. Although management uses its best judgment in estimating the fair
value of these financial instruments, there are inherent limitations in any
estimation technique. Therefore, these fair value estimates are not
necessarily indicative of the amounts that the corporation would realize in a
market transaction. The following methods and assumptions were used to
estimate the fair value of each class of financial instruments for which it
is practicable to estimate the value.
The carrying amount of cash and cash equivalents, receivables, on-site
cost reimbursement receivable, accounts payable and accrued expenses, and
accrued on-site salaries and benefits approximates fair value because of the
short-term maturity of these instruments.
The fair value of notes receivable are estimated by discounting estimated
future cash flows using current rates at which similar loans would be made to
borrowers with similar credit ratings.
The fair value of the Credit Facility approximates carrying value because
the interest rate on this debt changes with market interest rates.
F-36
<PAGE>
The fair value of other notes payable approximates carrying value as
these notes either have a stated interest rate comparable to a current market
interest rate for similar obligations, or, if non-interest bearing, have been
recorded at a discount based on a current market interest rate for similar
obligations.
The fair value of financial guarantees is based on the estimated cost to
settle the obligations.
(16) NON-RECURRING EXPENSES AND EXTRAORDINARY ITEMS
NON-RECURRING EXPENSES
In 1993, the Company initiated a systems project to replace its three
current computer systems with a single system based on a client-server
technology. In December 1994, the Company concluded that the conceptual
design of the new system was flawed and expensed all costs associated with
the project, totaling $1.8 million, as a non-recurring expense. Subsequently,
in June 1995, the Company received a net cash payment of $0.4 million from
two of the parties participating in the project which has been reflected as a
reduction of non-recurring expenses in the accompanying financial statements.
In February 1995, as discussed in Note 11, the Company extended the
exercise term of options granted under the Company's 1990 Stock Option Plan
and granted a terminating employee the right to exercise his options for up
to two years after his departure. As a result of these actions, non-recurring
compensation expense of $0.5 million was recognized in the first quarter of
1995.
EXTRAORDINARY ITEMS
In connection with the repayment of the Company's credit facility in the
third quarter of 1995, the Company expensed the remaining $0.7 million of
deferred financing costs related to the Company's previous credit facility.
This charge was recorded net of a $0.3 million income tax benefit and
classified as an extraordinary item in the Consolidated Statement of
Operations.
F-37
<PAGE>
(17) SUBSEQUENT EVENTS
1997 ACQUISITIONS
In November 1996, the Company and Property Resources Corporation ("PRC")
signed an agreement to enter into three separate joint ventures (the "PRC
Acquisition"). The Company purchased a 15% interest in NHP/PRC Management
Company, LLC ("NHPPRC"), a limited liability property management company,
from PRC. NHPPRC is the management agent for a portfolio of 19 HUD subsidized
properties containing 2,426 apartments in New York City and will subcontract
the management of these properties to the Company. Because the Company has
voting control over this entity, the results of NHPPRC will be consolidated
with those of the Company and PRC's interest will be accounted for as a
minority interest.
The Company and PRC also formed Aptek Management Co. LLC which will
provide property management services for third party-owned condominiums,
cooperatives, public housing, university and hospital housing in the New York
metropolitan region. In addition, the Company and PRC formed Aptek
Maintenance Services, LLC, which will provide maintenance services for
Company-managed properties and third-party-owned properties where
competitive, initially in New York. Both Aptek Management Co. LLC and Aptek
Maintenance Services, LLC are owned equally by PRC and the Company but PRC
will control and oversee their operations. These two joint ventures will be
accounted for under the equity method of accounting.
The PRC Acquisition closed in escrow in late 1996 but did not receive HUD
2530 approval until January 1997. Therefore, for financial accounting
purposes, the transaction will be accounted for as a 1997 acquisition. Total
consideration paid by the Company to PRC was approximately $1.4 million,
including a commitment to issue approximately 31,000 shares of the Company's
common stock in five years, or the cash equivalent of its then current market
value. As part of the transaction, PRC has the right to require the Company,
at any time, upon 30 days' notice through January 2002, to purchase the
remaining 85% interest of NHPPRC for $3.8 million. In conjunction with the
transaction, the Company lent $4.2 million to PRC under a promissory note.
The note has a rate of 7% and requires PRC to make quarterly interest
payments with the principal amount due in January 2002.
In January 1997, the Company acquired all of the outstanding shares of
Broad Street Management, Inc. ("Broad Street"), a Columbus, Ohio-based
property management company for approximately $1.8 million. Broad Street, as
a wholly owned subsidiary, will continue to manage a portfolio of 17
apartment communities aggregating 1,942 units, located in Columbus, Ohio,
Louisville, Kentucky and Augusta, Georgia. The acquisition will be accounted
for under the purchase method of accounting.
On April 16, 1997, Washington Mortgage Financial completed the
acquisition of certain assets from Askew Investment Company for $4.6 million.
The acquisition will be accounted for under the purchase method of accounting.
AMENDMENT TO CREDIT FACILITY
In February 1997, the terms of the Company's $75 million Credit Facility
were amended. The significant changes in the agreement include the allowance
of up to $100 million in additional senior unsecured term debt, an increase
in the amount of unsubordinated borrowing allowed in connection with
acquisitions from $10 million to $25 million, and a reduction in the Credit
Facility's overall pricing. The interest rate has been reduced from The First
National Bank of Boston's base rate or LIBOR plus 175 basis points to a
sliding scale rate which ranges from LIBOR
F-38
<PAGE>
plus 75 basis points to LIBOR plus 125 basis points, depending on the
Company's ratio of debt to EBITDA. In addition, the commitment fee on the
unused portion of the Credit Facility may be reduced from 37.5 basis points
per annum to 25 basis points per annum, also depending on the ratio of debt
to EBITDA.
(18) QUARTERLY FINANCIAL AND OPERATING DATA (UNAUDITED)
The following table sets forth certain unaudited quarterly financial and
operating data for the years ended December 31, 1996 and 1995. The Company
believes that the following selected quarterly information includes all
adjustments necessary for a fair presentation, in accordance with generally
accepted accounting principles (dollars in thousands except per share
amounts).
<TABLE>
<CAPTION>
1996 Quarters
--------------------------------------------
First Second Third Fourth
----- ------ ----- ------
<S> <C> <C> <C> <C>
Total revenue $45,805 $46,746 $47,934 $54,494
Operating income 5,080 4,963 4,760 5,874
Income from continuing operations before extraordinary
item 2,803 2,504 2,141 3,017
Income from discontinued operations - 421 182 552
Income before extraordinary item 2,803 2,925 2,323 3,569
Per common share:
Income from continuing operations before extraordinary
item $ .22 $ .20 $ .17 $ .24
Income from discontinued operations - .03 .01 .04
Income before extraordinary item .22 .23 .18 .28
Dividends declared (a) - - - -
Stock price:
High $19 5/8 $20 5/8 $20 7/8 $ 19
Low 17 17 5/8 16 5/8 15 1/4
<CAPTION>
1996 Quarters
--------------------------------------------
First Second Third Fourth
----- ------ ----- ------
<S> <C> <C> <C> <C>
Total revenue $42,002 $42,916 $43,877 $45,879
Operating income 3,705 4,674 5,056 5,872
Income from continuing operations before
extraordinary item 1,882 2,745 23,720 3,266
Income (loss) from discontinued real estate operations (2,557) 504 90 -
Income before extraordinary item (675) 3,249 23,810 3,266
Per common share:
Income from continuing operations before
extraordinary item $ .24 $ .35 $ 2.35 $ .26
Income (loss) from discontinued operations (.32) .06 .01 -
Income before extraordinary item (.08) .41 2.36 .26
Dividends declared (a) - - - -
Stock price (b):
High - - $14 $18 5/8
Low - - 12 13 3/4
</TABLE>
- ----------------
F-39
<PAGE>
(a) The Company has never paid dividends and does not intend to pay dividends
in the foreseeable future. Any payment of future dividends and the
amounts thereof will be dependent upon the Company's earnings, financial
and other requirements, including contractual obligations.
(b) The Company completed its initial public offering on August 18, 1995. Stock
prices shown are only for periods subsequent to that date.
F-40
<PAGE>
Exhibit 99.2
NHP Incorporated
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (RESTATED)
Introduction
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements in certain circumstances. Certain
information included in this Report and other Company filings (collectively
"SEC Filings") under the Securities Act of 1933, as amended, and the
Securities Exchange Act of 1934, as amended (as well as information
communicated orally or in writing between the dates of such SEC Filings)
contains or may contain information that is forward looking, including
statements regarding the effect of government regulations and regarding the
effect of acquisitions. Actual results may differ materially from those
described in the forward looking statements and will be affected by a variety
of factors including the completion of the merger discussed below, 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, the
availability of working capital, dispositions of properties managed by the
Company, and the availability of acquisition opportunities. Additional
factors that could affect results are set forth below and in the Company's
registration statement on Form S-1, filed June 5, 1995, as amended.
Initial Public Offering
On August 18, 1995, NHP Incorporated (the "Company") completed an initial
public offering (the "IPO") of 4.3 million shares of its common stock for net
proceeds of approximately $52.0 million. Prior to that date the Company had
been owned by various private investors. Concurrently with the closing of the
IPO, the Company sold those of its subsidiaries which held all of the
Company's direct and indirect interest in property-owning partnerships, along
with its captive insurance subsidiary and certain other related assets
(collectively referred to as the "Real Estate Companies") to the two
controlling shareholders of the Company, Demeter Holdings Corporation
("Demeter") and Capricorn Investors, L.P. ("Capricorn"), and J. Roderick
Heller, III, the Chairman, President and Chief Executive Officer of the
Company ("Mr. Heller"). Accordingly, operating results and cash flows
attributable to the Real Estate Companies have been presented as discontinued
operations in the accompanying financial statements in conformity with
generally accepted accounting principles. For a summary and discussion of the
operating results of discontinued operations and the financial impact from
the disposal of discontinued operations, see Note 2 to the Consolidated
Financial Statements. The following discussion, except where specifically
stated otherwise, relates only to the Company's continuing operations.
Change in Control, AIMCO Merger Agreement and WMF Spin-Off
On April 21, 1997, the Company announced that it had entered into a
definitive Merger Agreement pursuant to which the Company will be acquired by
Apartment Investment and Management Company ("AIMCO"), a real estate
investment trust whose shares are traded on the New York Stock Exchange
(AIV-NYSE). Upon completion of the merger, each of the Company's stockholders
will receive for each share of Company common stock, at the stockholder's
election, either (i) a combination of .37383 shares of AIMCO common stock and
$10.00 cash per share of Company common stock, or (ii) .74766 shares of AIMCO
common stock. AIMCO's Amended and Restated Articles of Incorporation prohibit
direct or constructive ownership of AIMCO common stock representing more than
8.7% (or 15% in the case of certain pension trusts, registered investment
companies and certain other persons) of the total of outstanding shares of
AIMCO common stock by any person (the "Ownership Limit"). Any person who would
receive shares of AIMCO common stock in excess of the Ownership Limit
("Excess Shares"), will receive instead an amount in cash equal to the number
of such Excess Shares multiplied by $26.75. The merger is conditioned on the
approval of the Company's stockholders and AIMCO stockholders, and customary
state and federal regulatory and other approvals.
AIMCO has separately entered into a Stock Purchase Agreement with Demeter
and Capricorn, who together held a majority of the outstanding shares of the
Company's common stock (approximately 54.8%). Pursuant to the Stock Purchase
Agreement, AIMCO will acquire all of the Company's common stock held by
Demeter and Capricorn. AIMCO will pay Demeter $20 in cash per share for the
Company shares held directly by Demeter provided that AIMCO has the option to
pay in the form of shares of AIMCO common stock (valued for this purpose at
$26.75 per share) to the extent cash consideration would exceed $59,973,027.
For Capricorn's shares, AIMCO will pay
.74766 shares of AIMCO common stock per share of Company common stock. On May
5, 1997, AIMCO acquired 6,496,071 shares of the Company's stock from Demeter
and Capricorn, or approximately 51% of the Company's outstanding shares,
pursuant to the Stock Purchase Agreement for a payment of $72,600,000 in cash
and 2,142,857 shares of AIMCO common stock. Upon completion of AIMCO's purchase
of this portion of the shares held by Demeter and Capricorn, AIMCO holds a
majority of the issued and outstanding shares of the Company's common stock.
The Stock Purchase Agreement provides for AIMCO to acquire the remaining
434,051 shares of Company common stock owned by Demeter and
M-1
<PAGE>
Capricorn. The merger with AIMCO will, however, require approval by
two-thirds vote of all shares of Company common stock held by persons other
than AIMCO. Stockholder meetings to approve the merger are expected to be
held in late summer.
The Company has also been informed that on May 22, 1997, AIMCO signed a
definitive agreement with Demeter and Capricorn to acquire the Real Estate
Companies, which are controlled by Demeter and Capricorn. Most of the
properties controlled by the Real Estate Companies are managed by the Company
pursuant to a long-term property management contract. Both the Company's and
AIMCO's obligations to complete the merger were conditioned on signing the
definitive agreement relating to the sale of real estate interests. As
consideration for AIMCO's executing the Merger Agreement, the Company has
waived its right of first refusal to purchase the Real Estate Companies. On
June 3, 1997, AIMCO completed the acquisition of the Real Estate Companies
for a total Consideration of $54.8 million cash and warrants to purchase
399,999 shares of AIMCO common stock.
On April 21, 1997, the Company entered into a Rights Agreement (the
"Rights Agreement") providing for the distribution of shares of The WMF
Group, Ltd. ("WMF") (formerly known as NHP Financial Services, Ltd. and WMF
Holdings, Ltd., and formerly the Company's Financial Services business
segment) to the Company's existing shareholders. Pursuant to the Rights
Agreement, the Company will issue to its stockholders rights (the "Rights")
to receive a distribution of one-third of a share of WMF stock for each right
at the earlier of the time of the AIMCO merger or on December 1, 1997, if the
AIMCO merger has not occurred by that date. WMF has received a commitment,
pursuant to which Capricorn Investors II, L.P. will, following the
negotiation and execution of definitive documentation and subject to the
satisfaction of the conditions that will be specified therein, to purchase
546,498 shares of WMF stock for an aggregate purchase price of $5 million on
or shortly after the distribution, which is equivalent to $9.15 per share of
WMF stock. The distribution of WMF stock is conditioned on the consent of
lenders under the Company's credit agreement. The rights were distributed on
May 9 to stockholders of record of the Company on May 2, 1997.
It is uncertain in what ways the purchase by AIMCO of the Company's stock
owned by Demeter and Capricorn, and the consummation of the AIMCO Merger
Agreement, will impact the operations of the Company. Therefore, any potential
impact which could result from the occurrence of these events is not included
in the following discussion of Company's results of operations and financial
position.
Overview
As a result of the adoption of the plan to distribute shares of WMF
(formerly the Company's Financial Services business segment), the Company's
Consolidated Financial Statements have been restated to reflect WMF as
discontinued operations. Continuing operations (formerly the Company's
Property Services business segment) includes the Company's property
management and related services. Discontinued operations (formerly the
Company's Financial Services business segment) includes mortgage financing
and servicing through WMF and its subsidiaries.
The Company has experienced growth in its revenues and operating income
during each of the three years ended December 31, 1996. Historically, a large
portion of this growth has been the result of increased property management
revenues caused by increases in the average number of units under management.
The increase in units under management has resulted primarily from
acquisitions of management rights. Although there was a slight net decrease
in the number of units under management at the end of 1996 verses 1995, the
average number of units under management during 1996 increased by
approximately 7,700 units, or 6.2% over 1995. The decrease in 1996 resulted
primarily from loss of management contracts due to the sale of the properties
and loss of management contracts related to properties managed by the Company
as court appointed receiver or as property manager for a court appointed
third-party receiver. The Company experienced a net gain in the number of
units under property management of 22,161 units during 1995, an increase of
19.9% over the end of 1994.
Certain Risks
As of December 31, 1996, the Company manages 64 affordable
properties (representing approximately 10,600 units) owned by the Real Estate
Companies that have secondary financing expiring in the next one to four
years. Most of these properties currently have a fair market value less than
the amount necessary to repay such secondary financing in full. The Company
expects the Real Estate Companies to renegotiate these mortgages where
necessary, but some attrition in the Company's management portfolio is
expected from maturity of these secondary mortgages. These 64 properties
generated approximately $5.3 million in property management revenue in 1996,
and the Company believes that less than 40% of this revenue is at risk over
the next four years due to a possible loss of property management with
respect to these properties. Revenue loss of that amount would not be
material compared with expected total revenue of the Company and would
not have a significant impact on the Company's financial condition or results
of operations.
M-2
<PAGE>
Approximately 64% of the properties and 44% of the units managed by
the Company at December 31, 1996 are affordable properties and units. A
substantial portion of the affordable properties were built or acquired by
the owners with the assistance of programs administered by the United States
Department of Housing and Urban Development ("HUD") that provide mortgage
insurance, favorable financing terms, or rental assistance payments to the
owners. As a condition to the receipt of assistance under these and other HUD
programs, the properties must comply with various HUD requirements including
limiting rents on these properties to amounts approved by HUD. On April 4,
1997, HUD's Jacksonville, Florida field office issued a limited denial of
participation, which (unless lifted) will suspend the Company's ability to
manage or acquire additional HUD related properties in Florida until April 4,
1998. The limited denial of participation was the result of a physical
inspection at one property of 68 units located in Florida. Although the
Company believes it has corrected the problems that led to the limited denial
of participation, and has requested that HUD lift the denial of
participation, the Company cannot determine whether HUD will do so.
For the past several years, various proposals have been advanced by the
United States Department of Housing and Urban Development ("HUD"), Congress
and others proposing the restructuring of HUD's rental assistance programs
under Section 8 of the United States Housing Act of 1937 ("Section 8"), under
which many affiliated properties receive rental subsidies. One such proposal
has recently been introduced in the U.S. Senate, and two such proposals have
recently been introduced in the U.S. House of Representatives. These
proposals generally seek to lower subsidized rents to market levels thereby
reducing rent subsidies and to lower required debt service costs as needed to
ensure financial viability at the reduced rents and subsidies levels, but
utilize varying approaches to achieve that goal.
Congress has not yet accepted any of these restructuring proposals and,
with respect to contracts expiring on or before September 30, 1997, Congress
has elected to renew expiring Section 8 Housing Assistance Program
Contracts for one year terms, generally at existing rents. Congress is
currently also considering various proposals for the renewal of Section 8
contracts that will expire during the federal fiscal year 1998 (October 1997
through September 1988). While the Company does not believe that the proposed
changes would result in a significant number of tenants relocating from
properties managed by the Company, there can be no assurance that the
proposed changes would not significantly affect the Company's management
portfolio. Furthermore, there can be no assurance that changes in federal
subsidies will not be more restrictive than those currently proposed or that
other changes in policy will not occur. Any such changes could have an
adverse effect on the Company's property management revenues.
As of December 31, 1996, the Company manages 64 properties for
unaffiliated third parties with property management contracts terminable
within one year. Some of the contracts may be terminated on short notice and
others may not be renewed for another term. In either case, the Company would
experience a revenue loss. Although the Company does not believe that any
anticipated revenue loss would have a significant impact on its financial
condition or results of operations, if the contracts that are terminated or
not renewed generate favorable margins, operating income would be adversely
affected. These properties generated approximately $4.1 million in property
management revenue in 1996.
The Real Estate Companies have indemnified the Company against any
environmental liability with respect to any property in which the Real Estate
Companies have had, have or acquire an interest in, unless such liability
results from the direct introduction of toxic substances into a property by
the Company after the consummation of the sale of the Real Estate Companies.
The Company has no known material environmental liabilities that require an
accrual and has obtained the indemnification from the Real Estate Companies
in the event any such liabilities should arise in the future.
The Company is substantially dependent on revenue from services provided
to properties for which the Real Estate Companies can determine the
management agent. Approximately 67% of the Company's property management
revenue in 1996 was derived from fees for services provided to properties for
which the Real Estate Companies can determine the management agent.
Acquisitions and New Businesses
1996 Acquisitions and New Business
Continuing Operations
On February 29, 1996, the Company entered into a three-year contract with
CRI, Inc., a Rockville, Maryland-based real estate investment firm, to
provide asset management, refinancing and disposition services for 286
affordable
M-3
<PAGE>
multifamily communities containing over 35,000 apartment units, which are
owned by 129 of CRI's public and private real estate partnerships. Revenues
associated with this contract are included in property management services
fees.
On May 16, 1996, the Company acquired 12 multifamily properties
containing 2,905 apartment units, including the right to manage the units on
a long-term basis, from affiliates of Great Atlantic Management, Inc. for a
purchase price (including transaction costs) of approximately $86.8 million
(the "Great Atlantic Acquisition"), in the form of approximately $71.2
million in third-party nonrecourse debt and $15.6 million in cash. The
Company made this acquisition with the intention of selling the real estate
ownership interests to third-party investors while retaining the
management rights to the properties. Accordingly, the Company has
historically accounted for its ownership interests in the Great Atlantic
properties as an investment in real estate held for sale, which is is
reported at the lower of carrying value or, fair value less estimated cost to
sell and as a single line item on the Consolidated Balance Sheet. As
a result of the acquisition by AIMCO of a majority of the issued and
outstanding shares of the Company, the Company no longer intends to sell the
Great Atlantic properties. Beginning in the second quarter of 1997, the
Company will include the results of operations and financial position of the
Great Atlantic properties in its consolidated results.
As of July 12, 1996, the Company, directly and through subsidiaries,
acquired the long-term management rights and certain notes receivable from
two Florida rental retirement communities as well as all of the outstanding
stock of Preferred Home Health, Inc. ("Preferred Home Health"). In addition,
the Real Estate Companies acquired certain other notes receivable from one of
the properties and subsequently acquired all of the issued and outstanding
stock of the corporate general partners of the limited partnership owners of
the two properties (the "Goldberg Acquisition"). The Company and the Real
Estate Companies acquired these assets from affiliates of the Stephen A.
Goldberg Company of Washington, D.C. and certain other individuals. Total
consideration in the transaction was approximately $16.3 million in cash and
$4.0 million in long-term notes. The purchase price was funded through
additional borrowings under the Company's revolving credit facility and a
$0.3 million cash payment by Partners. The transaction was accounted for
under the purchase method of accounting. Preferred Home Health, which the
Company now operates as a separate company, is a provider of home health care
services to residents of multifamily rental retirement communities.
Discontinued Operations
As of April 1, 1996, the Company closed the acquisition of all of the
outstanding capital stock of WMF Holdings, Ltd., which was subsequently
renamed The WMF Group, Ltd. ("WMF"), for consideratin of approximately $21
million, in the form of $16.8 million in cash and 210,000 shares of the
Company's common stock. The acquisition has been accounted for under the
purchase method of accounting. The excess of the purchase price over the fair
value of the net assets acquired was approximately $5.0 million and has been
recorded as goodwill on WMF's books. As a result of the April 21, 1997, plan
to distribute the shares of WMF stock to the Company's existing shareholders
pursuant to the Rights Agreement, the results of WMF from the date of its
acquisition have been classified as discontinued operations. WMF is the owner
of Washington Mortgage Financial Group, Ltd. ("Washington Mortgage
Financial"), located in Fairfax County, Virginia, a multifamily mortgage
originator and servicer. Washington Mortgage Financial
originated approximately $962 million in multifamily and other commercial
mortgages in 1996, subsequent to the date of acquisition. Included in
Washington Mortgage Financial is WMF/Huntoon, Paige Associates Limited
("WMF/Huntoon, Paige"), an FHA mortgage originator and servicer located in
Edison, New Jersey.
On May 13, 1996, WMF/Huntoon Paige, a subsidiary of Washington Mortgage
Financial, completed the purchase of a portion of the loan production
pipeline, as well as certain other assets, of American Capital Resource, Inc.
("ACR") for approximately $2.2 million plus potential future payments based
on realization of the pipeline through August 1997. The purchase has been
accounted for under the purchase method of accounting and results in
WMF/Huntoon, Paige becoming the nation's largest FHA-insured multifamily loan
originator. In addition, during 1996 WMF/Huntoon Paige also purchased the
servicing rights to various loans from ACR for a total of $2.0 million.
As of December 31, 1996, Washington Mortgage Financial acquired
Detroit-based Proctor & Associates ("Proctor"), for approximately $3.7
million. Included in the transaction is Proctor's $1.1 billion loan servicing
portfolio of multifamily, retail, and office building mortgages, as well as
the firm's fifteen active correspondent relationships with life insurance
companies. Proctor originated nearly $180 million in commercial mortgage
loans in 1996. The purchase has been accounted for under the purchase method
of accounting. The excess of the purchase price over the fair value of the
net assets acquired was $3.1 million and has been recorded by WMF as goodwill.
M-4
<PAGE>
1997 Acquisitions
Continuing Operations
In November 1996, the Company and Property Resources Corporation ("PRC")
signed an agreement to enter into three separate joint ventures (the "PRC
Acquisition"). The Company purchased a 15% interest in NHP/PRC Management
Company, LLC ("NHPPRC"), a limited liability property management company,
from PRC. NHPPRC is the management agent for a portfolio of 19 HUD subsidized
properties containing 2,426 apartments in New York City and has subcontracted
the management of these properties to the Company. Because the Company's
interest in NHPPRC constitutes 100% of the Class A membership interest, it
has operational and voting control over this entity, and the results of
NHPPRC are consolidated with those of the Company and PRC's interest is
accounted for as a minority interest.
The Company and PRC also formed Aptek Management Co. LLC which will
provide property management services for third party-owned condominiums,
cooperatives, public housing, university and hospital housing in the New York
metropolitan region. In addition, the Company and PRC formed Aptek
Maintenance Services, LLC, which will provide maintenance services for
Company-managed properties and third-party-owned properties where
competitive, initially in New York. Both Aptek Management Co. LLC and Aptek
Maintenance Services, LLC are owned equally by PRC and the Company but PRC
will control and oversee their operations. These two joint ventures will be
accounted for under the equity method of accounting.
The PRC Acquisition closed in escrow in late 1996 but did not receive HUD
2530 approval until January 1997. Therefore, for financial accounting
purposes, the transaction is accounted for as a 1997 acquisition. Total
consideration paid by the Company to PRC was approximately $1.4 million. The
Company also has a commitment to issue approximately 31,000 shares of the
Company's common stock in five years, or the cash equivalent of its then
current market value. The estimated value of this commitment is $0.7 million
and has been recorded as liability and is included in other long-term
liabilities on the Consolidated Balance Sheet. As part of the transaction,
PRC has the right to require the Company, at any time, upon 30 days notice
through January 2002, to purchase the remaining 85% interest of NHPPRC for
$3.8 million (the "Put Option"). The Company recorded a $3.2 million
liability related to the Put Option. This liability represents the estimate
of the difference between the amount to be paid by the Company ($3.8 million)
and the estimate of the present value of the remaining cash flows to be
acquired at the time the Put Option is expected to be exercised. This
liability is included in other long-term liabilities on the Consolidated
Balance Sheet. Total purchased management contracts recorded associated with
the PRC acquisition was $5.4 million. Also in conjunction with the
transaction, the Company loaned $4.2 million to PRC under a promissory note.
The note, which is included in other assets on the Consolidated Balance
Sheet, has a rate of 7% and requires PRC to make quarterly interest payments
with the principal amount due in January 2002.
In January 1997, the Company acquired all of the outstanding shares of
Broad Street Management, Inc. ("Broad Street"), a Columbus, Ohio-based
property management company for approximately $1.8 million. Broad Street, as
a wholly owned subsidiary, will continue to manage a portfolio of 17
apartment communities aggregating 1,942 units, located in Columbus, Ohio,
Louisville, Kentucky and Augusta, Georgia. The Broad Street acquisition has
been accounted for under the purchase method of accounting and resulted in
the entire purchase price being allocated to purchased management contracts.
Discontinued Operations
On April 16, 1997, Washington Mortgage Financial completed the
acquisition of the assets Askew Investment Company ("Askew"), the third
largest commercial mortgage banking firm in metropolitan Dallas-Fort Worth,
Texas, for $4.6 million. Included in the transaction is Askew's $425 million
loan servicing portfolio of office building, warehouse, retail, and
multifamily properties, as well as the firm's 14 active correspondent
relationships with life insurance companies. The acquisition will be
accounted for under the purchase method of accounting.
M-5
<PAGE>
Results of Operations - Summary
The Company recorded pre-tax income from continuing operations in 1996
(before discontinued operations and extraordinary item) of $17.4 million
compared with $13.8 million for 1995, an improvement of $3.6 million, or
26.3%. Both revenues and expenses of the Company showed increases in 1996
over 1995, primarily as a result of an increase in the average number of
units under management and other acquisitions. The Company's earnings from
continuing operations before interest expense, income taxes, depreciation and
amortization ("EBITDA") was $27.7 million for 1996 compared with $23.4
million for 1995, an improvement of $4.3 million, or 18.4%. EBITDA is widely
used in the industry as a measure of a company's operating performance, but
should not be construed as an alternative either (i) to income from
continuing operations (determined in accordance with generally accepted
accounting principles) as a measure of profitability or (ii) to cash flows
from operating activities (determined in accordance with generally accepted
accounting principles). EBITDA does not take into account the Company's debt
service requirements and other commitments and, accordingly, is not
necessarily indicative of amounts that may be available for discretionary
uses.
Net income for 1996 was $11.6 million, an increase of $5.7 million, or
96.2%, over 1995, excluding the recognition of a $23.3 million net deferred
tax asset in 1995. Net income for 1995 of $29.3 million includes a $17.8
million income tax benefit. The income tax benefit resulted from the
recognition, in the third quarter, of a $23.3 million net deferred tax asset
primarily consisting of Federal tax net operating loss carryforwards ("NOLs")
following the sale of the Real Estate Companies on August 18, 1995, net of
the year-to-date tax provision of $5.5 million. No tax provision was recorded
in 1994 due to NOLs generated by the Real Estate Companies in prior years.
For further discussion, see Note 9 to the Consolidated Financial Statements.
Net income for 1994 included a non-recurring charge of $1.8 million related
to a terminated computer technology project. In addition, the Company
recorded an extraordinary after-tax charge of $0.4 million in the third
quarter of 1995 related to the early termination of a credit facility.
The Company files a consolidated Federal income tax return and prior to
the third quarter of 1995 had recognized no provision or benefit for income
taxes primarily because of net operating losses generated in prior years by
the discontinued real estate operations. Prior to the sale of the Real Estate
Companies, losses from discontinued operations typically caused the Company
to report no taxable income, making realization of NOLs uncertain. As a
result, historically, the Company had established a valuation allowance for
the full amount of the NOLs. Subsequent to the sale of the Real Estate
Companies, the Company reduced its valuation allowance, resulting in the
recognition of a net deferred tax asset. For further discussion see Note 9 to
the Consolidated Financial Statements.
Results of Operations - Continuing Operations
Table 1 below sets forth the percentage of the Company's total revenue
from continuing operations represented by each operating statement line
presented. This table is presented as supplemental information to enable the
reader to better analyze the Company's change in revenues and expenses during
the three years ended December 31, 1996. The percent of revenue comparison is
intended to make the periods more comparable by removing the absolute effect
of growth in revenues and expenses which results from the Company's
acquisition of additional management contracts and other businesses. Such a
presentation would also reflect economies in the Company's operating
expenses, to the extent they exist.
M-6
<PAGE>
Table 1
Summary Financial and Operational Data--Revenue and Expenses from Continuing
Operations As a Percentage of Total Revenue from Continuing Operations
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1996 1995 1994
--------- --------- ---------
Revenue
Property management services.......................................................... 28.0% 27.7% 27.8%
On-Site personnel, general and administrative cost reimbursement...................... 65.3% 67.1% 66.7%
Administrative and reporting fees..................................................... 2.4% 2.4% 2.5%
Other................................................................................. 4.3% 2.8% 3.0%
--------- --------- ---------
Total revenue...................................................................... 100.0% 100.0% 100.0%
Expenses
Salaries and benefits
On-Site employees.................................................................. 63.7% 64.7% 63.5%
Off-Site employees................................................................. 13.7% 12.8% 13.0%
Other general and administrative...................................................... 7.2% 6.8% 7.4%
Costs charged to the Real Estate Companies............................................ 1.6% 2.4% 3.1%
Amortization of purchased management contracts........................................ 2.3% 1.8% 1.4%
Other depreciation and amortization................................................... 0.9% 0.4% 0.3%
Non-recurring expenses................................................................ -- -- 1.2%
--------- --------- ---------
Total expenses..................................................................... 89.4% 88.9% 89.9%
--------- --------- ---------
Operating income......................................................................... 10.6% 11.1% 10.1%
--------- --------- ---------
--------- --------- ---------
EBITDA................................................................................... 14.2% 13.4% 11.8%
--------- --------- ---------
--------- --------- ---------
</TABLE>
The Company's expenses of continuing operations include salaries and
benefits with respect to employees working at managed properties, which are
fully reimbursed by the property-owning partnerships, and certain general and
administrative costs that are fully reimbursed by the Real Estate Companies.
The reimbursements, recorded as revenue under On-site personnel, general and
administrative cost reimbursement, fully offset the corresponding expenses,
with no impact on net income. Therefore, reimbursed expenses and related
revenue are not analyzed in any detail below. Table 2 shows the Company's
adjusted revenue and expenses of continuing operations, which exclude on-site
personnel, general and administrative cost reimbursements, and related
expenses.
Table 3 below sets forth the percentage of the Company's total revenue
from continuing operations excluding on-site personnel, general and
administrative cost reimbursement ("adjusted revenue") represented by each
revenue and expense line presented. This table is presented as supplemental
information to enable the reader to better analyze the change in revenues and
expenses during the three years ended December 31, 1996, 1995 and 1994. The
percent of revenue comparison is intended to make the periods more comparable
by removing the absolute effect of growth in revenues and expenses which
results from expansion of the Company's business. Such a presentation would
also reflect economies in operating expenses, to the extent they exist.
M-7
<PAGE>
Table 2
Summary Financial and Operational Data--Adjusted Revenue and
Adjusted Operating Expenses (In thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1996 1995 1994
--------- --------- ---------
Revenue
Property management services.................................................. $ 54,632 $ 48,336 $ 40,953
Administrative and reporting fees............................................. 4,593 4,148 3,680
Other......................................................................... 8,488 4,941 4,505
--------- --------- ---------
Adjusted revenue (1)....................................................... 67,713 57,425 49,138
Expenses
Salaries and benefits, off-site employees..................................... 26,641 22,371 19,099
Other general and administrative.............................................. 14,074 11,899 10,968
Amortization of purchased management contracts................................ 4,562 3,076 2,043
Other depreciation and amortization........................................... 1,759 727 481
Non-recurring expenses........................................................ -- 45 1,806
--------- --------- ---------
Adjusted operating expenses (2)............................................ 47,036 38,118 34,397
--------- --------- ---------
Operating income................................................................. $ 20,677 $ 19,307 $ 14,741
--------- --------- ---------
--------- --------- ---------
EBITDA........................................................................... $ 27,745 $ 23,402 $ 17,386
--------- --------- ---------
--------- --------- ---------
</TABLE>
Table 3
Summary Financial and Operational Data--Adjusted Operating Revenue and
Adjusted Operating Expenses as a Percentage of Adjusted Revenue
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1996 1995 1994
--------- --------- ---------
Revenue
Property management services.......................................................... 80.7% 84.2% 83.3%
Administrative and reporting fees..................................................... 6.8% 7.2% 7.5%
Other................................................................................. 12.5% 8.6% 9.2%
--------- --------- ---------
Adjusted revenue (1)............................................................... 100.0% 100.0% 100.0%
Expenses
Salaries and benefits
Off-Site employees.................................................................. 39.3% 39.0% 38.9%
Other general and administrative...................................................... 20.8% 20.7% 22.2%
Amortization of purchased management contracts........................................ 6.7% 5.4% 4.2%
Other depreciation and amortization................................................... 2.6% 1.3% 1.0%
Non-recurring expenses................................................................ -- 0.1% 3.7%
--------- --------- ---------
Adjusted operating expenses (2)................................................... 69.4% 66.5% 70.0%
--------- --------- ---------
Operating income......................................................................... 30.6% 33.5% 30.0%
--------- --------- ---------
--------- --------- ---------
EBITDA................................................................................... 41.0% 40.8% 35.4%
--------- --------- ---------
--------- --------- ---------
</TABLE>
- ------------------------
(1) Adjusted revenue excludes on-site personnel, general and administrative cost
reimbursement.
(2) Adjusted operating expenses exclude salaries and benefits for on-site
employees and costs charged to the Real Estate Companies.
M-8
<PAGE>
Results of Operations - 1996 Compared with 1995
Revenue
The Company's total revenue from continuing operations consists of property
management services fees, on-site personnel, general and administrative cost
reimbursement, administrative and reporting fees and other revenues. Adjusted
revenue equals total revenue less on-site personnel, general and administrative
cost reimbursement. Total revenue increased $20.3 million, or 11.6%, to
$195.0 million in 1996 from $174.7 million in 1995. Adjusted revenue increased
$10.3 million, or 17.9%, to $67.7 million in 1996 from $57.4 million in 1995.
The reasons for these increases are set forth below.
Property management services revenue consists primarily of fees earned on
property management contracts. Beginning in 1996 this revenue also includes
asset management related fees. Property management services revenue increased
$6.3 million, or 13.0%, to $54.6 million in 1996 from $48.3 million in 1995. As
a percentage of total revenue, property management revenue increased to 28.0%
from 27.7%. As a percentage of adjusted revenue, property management revenue
decreased to 80.7% from 84.2%. The increase in absolute terms and as a
percentage of total revenue resulted primarily from an increase in the average
number of units managed and the new asset management contract with CRI, Inc.,
previously discussed. The decrease as a percentage of adjusted revenue resulted
from the more than proportional increase in other revenues discussed below.
Administrative and reporting fees consist of fees payable from
property-owning partnerships, which are payable from investor limited partners'
share of distributable cash flow of the partnerships, as compensation for
providing certain administrative services to the property-owning partnerships.
These fees are payable only to the extent cash flow is available, and therefore
the receipt and timing of such fees cannot be assured. The amount of these fees
received is dependent in part on the operating results and cash requirements, as
determined in part by the general partner, of the underlying properties. The
Company accrues these fees as services are rendered and establishes a reserve
equal to the amount of accrued fees that are not assured of being paid. The
Company has experienced significant variations in these fees from one period to
another and these variations may occur in the future.
Administrative and reporting fees revenue increased by $0.5 million, or
10.7%, to $4.6 million in 1996 from $4.1 million in 1995. As a percentage of
total revenue, administrative and reporting fees revenue remained essentially
the same. As a percentage of adjusted revenue, administrative and reporting fees
revenue decreased to 6.8% from 7.2%. The Company expects administrative and
reporting fees to continue to decline as a percentage of adjusted revenue
because these fees generally are not received with respect to newly-acquired
management contracts and as the properties which have A&R fees are lost due to
sale or other reasons.
Other revenue includes Buyers Access-Registered Trademark- fees, revenue
from Preferred Home Health, tax credit investment fees, insurance advisory fees
and other revenue. Buyers Access-Registered Trademark- fees consist of annual
membership fees paid by property-owning partnerships and rebates paid to the
Company by suppliers participating in the Company's Buyers Access-Registered
Trademark- program. Tax credit investment fees consist of fees earned from
providing a variety of services to institutional investors in connection with
their equity investment in Low Income Tax Credit properties. The Company
has experienced significant variations in the tax credit investment fees from
one period to another, and these variations may recur in the future. Insurance
advisory fees consist of fees received by the Company in connection with
administration of insurance programs for managed properties.
Other revenue increased $3.6 million, or 71.8%, to $8.5 million in 1996
from $4.9 million in 1995. As a percentage of total revenue, other revenue
increased to 4.3% from 2.8%. As a percentage of adjusted revenue, other revenue
increased to 12.5% from 8.6%. The increase in absolute terms and as a percentage
of total and adjusted revenue resulted primarily from the acquisition of
Preferred Home Health in July 1996, which contributed $1.8 million in revenue,
and an increase in the average number of units enrolled in the Buyers
Access-Registered Trademark- program. In addition, the Company also recorded
$1.2 million in revenue in 1996 associated with fees for services performed
related to the refinancing of several properties owned by affiliates and the
recovery of a portion of certain purchased receivables which, due to doubts
regarding their collection, had been assigned no value at the date of
acquisition in 1995.
M-9
<PAGE>
Expenses
The Company's total expenses of continuing operations consist of salaries
and benefits for on-site and off-site employees, other general and
administrative expenses, costs charged to the Real Estate Companies,
amortization of purchased management contracts, other depreciation and
amortization and non-recurring expenses. Adjusted operating expenses equal total
expenses less salaries and benefits for on-site employees and costs charged to
the Real Estate Companies. Total expenses increased $18.9 million, or 12.2%, to
$174.3 million in 1996 from $155.4 million in 1995. Total expenses as a
percentage of total revenue increased to 89.4% in 1996 from 88.9% in 1995.
Adjusted operating expenses increased $8.9 million, or 23.4%, to $47.0 million
in 1996 from $38.1 million in 1995. Adjusted operating expenses as percent of
adjusted revenue increased to 69.4% from 66.5%. The reasons for these changes
are set forth below.
Salaries and benefits - off-site employees consist of personnel expenses
incurred for employees other than employees working at the properties. These
expenses increased $4.2 million, or 19.1%, to $26.6 million in 1996 from
$22.4 million in 1995. As a percentage of total revenue, salary and benefits -
off-site employees increased to 13.7% from 12.8%. As a percentage of adjusted
revenue, these expenses increased slightly to 39.3% from 39.0%. The increase in
absolute terms and as a percentage of total and adjusted revenue resulted
primarily from additional personnel costs associated with Preferred Home Health
($1.3 million), additional personnel required to manage a higher average number
of units, and the addition of personnel to expand the Company's customer
and equity services.
Other general and administrative expenses consist of professional fees,
travel, management information systems, occupancy, telephone and equipment
rental, and other expenses. These expenses increased $2.2 million, or 18.3%, to
$14.1 million in 1996 from $11.9 million in 1995. As a percentage of total
revenue, other general and administrative expenses increased to 7.2% from 6.8%.
As a percentage of adjusted revenue, these expenses remained essentially the
same. The increase in absolute terms and as a percentage of total revenue
resulted primarily from higher professional fees resulting from the growth in
the Company's business, an approximately $1.0 million charge to expense to
increase the allowance for doubtful accounts, and increased costs associated
with the Company's new facilities in Vienna, Virginia and Indianapolis, Indiana.
Amortization of purchased management contracts consists of the amortization
of the costs of acquisition of property management rights. Costs are amortized
over the shorter of 15 years or the estimated life of the management contracts
which include projected renewals. Amortization periods range from 1 to 15 years.
These expenses increased $1.5 million, or 48.3%, to $4.6 million in 1996 from
$3.1 million in 1995. As a percentage of total revenue, amortization of
purchased management contracts increased to 2.3% from 1.8%. As a percentage of
adjusted revenue, these expenses increased to 6.7% from 5.4%. The increase in
absolute terms and as a percentage of total and adjusted revenues resulted
primarily from the acquisition of additional management contracts.
Other depreciation and amortization consist primarily of the depreciation
of furniture, equipment (primarily computer equipment) and software,
amortization of costs of leasehold improvements and amortization of the excess
of purchase price over net assets acquired ("goodwill") associated with the
purchase of Preferred Home Health. Depreciation and amortization increased
$1.0 million, or 142.0%, to $1.7 million in 1996 from $0.7 million in 1995. As a
percentage of total revenue, depreciation and amortization increased to 0.9%
from 0.4%. As a percentage of adjusted revenue, these expenses increased to 2.6%
from 1.3%. The increase in absolute terms and as a percentage of total and
adjusted revenue resulted primarily from increased depreciation on computer
hardware and software purchased in connection with the Company's move from
mainframe to client-server based technology, depreciation and amortization of
leasehold improvements and furniture and equipment purchased in connection with
the movement of the Company's headquarters to Vienna, Virginia and the movement
of the Company's Indianapolis, Indiana facilities to new location in
Indianapolis, and amortization of goodwill associated with the July 1996
acquisition of Preferred Home Health.
Non-recurring expenses incurred in 1995 include stock option compensation
expense of $0.5 million due to the extension of the exercise period of stock
options held by one former and five current employees. The extension was
approved by the Company's Board of Directors in February 1995. Additionally, the
Company recorded an expense reduction of $0.4 million, reflecting partial
reimbursements by third parties with respect to the costs of transferring
operations to a new computer system. A $1.8 million charge for the termination
of this systems project was originally recorded in December 1994 as a
non-recurring expense.
M-10
<PAGE>
Results of Operations - 1995 compared with 1994
Revenue
The Company's total revenue from continuing operations increased
$27.4 million, or 18.6%, to $174.7 million in 1995 from $147.3 million in 1994.
Adjusted revenue increased $8.3 million, or 16.9%, to $57.4 million in 1995 from
$49.1 million in 1994. The reasons for these increases are set forth below.
Property management services revenue increased $7.3 million, or 18.0%, to
$48.3 million in 1995 from $41.0 million in 1994. As a percentage of total
revenue, property management revenue remained essentially the same. As a
percentage of adjusted revenue, property management revenue increased to 84.2%
from 83.3%. The increase in absolute terms and as a percentage of adjusted
revenue resulted primarily from an increase in the average number of units
managed due to the acquisition of additional property management rights.
Administrative and reporting fees increased by $0.4 million, or 12.7%, to
$4.1 million in 1995 from $3.7 million in 1994. As a percentage of total
revenue, administrative and reporting fees revenue remained essentially the
same. As a percentage of adjusted revenue, administrative and reporting fees
revenue decreased to 7.2% from 7.5%. The Company expects administrative and
reporting fees to continue to decline as a percentage of adjusted revenue
because these fees generally are not received with respect to newly-acquired
management contracts and as the properties which have A&R fees are lost due to
sale or other reasons.
Other revenue increased $0.4 million, or 9.7%, to $4.9 million in 1995 from
$4.5 million in 1994. As a percentage of total revenue, other revenue decreased
to 2.8% from 3.0%. As a percentage of adjusted revenue, other revenue decreased
to 8.6% from 9.2%. The increase in absolute terms resulted primarily from an
increase in the average number of units enrolled in the Buyers Access-Registered
Trademark- program offset slightly by fewer tax credit investment transactions
being completed during 1995 as compared to 1994. The decrease as a percentage of
total and adjusted revenue is due to the more than proportional increase in
property management services revenue discussed above.
Expenses
The Company's total expenses of continuing operations increased
$22.8 million, or 17.2%, to $155.4 million in 1995 from $132.6 million in 1994.
Total expenses as a percentage of total revenue decreased to 88.9% in 1995 from
89.9% in 1994. Adjusted operating expenses increased $3.7 million, or 10.8%, to
$38.1 million in 1995 from $34.4 million in 1994. Adjusted operating expenses as
a percent of adjusted revenue decreased to 66.5% from 70.0%. The reasons for
these changes are set forth below.
Salaries and benefits - off-site employees increased $3.3 million, or
17.1%, to $22.4 million in 1995 from $19.1 million in 1994. As a percentage of
total revenue, salary and benefits - off-site employees decreased slightly to
12.8% from 13.0%. As a percentage of adjusted revenue, these expenses remained
essentially the same. The increase in absolute terms resulted primarily from
the Company's growth and increased executive incentive compensation during
1995.
Other general and administrative expenses increased $0.9 million, or 8.5%,
to $11.9 million in 1995 from $11.0 million in 1994. As a percentage of total
revenue, other general and administrative expenses decreased to 6.8% from 7.4%.
As a percentage of adjusted revenue, these expenses decreased to 20.7% from
22.2%. The increase in absolute terms resulted primarily from higher transition
and management expenses related to the expansion of the management portfolio.
Amortization of purchased management contracts increased $1.1 million, or
50.6%, to $3.1 million in 1995 from $2.0 million in 1994. As a percentage of
total revenue, amortization of purchased management contracts increased to 1.8%
from 1.4%. As a percentage of adjusted revenue, these expenses increased to 5.4%
from 4.2%. The increase in absolute terms and as a percentage of total and
adjusted revenues resulted primarily from amortization of management contracts
related to the Congress and Hall Acquisitions.
M-11
<PAGE>
Other depreciation and amortization increased $0.2 million, or 51.1%, to
$0.7 million in 1995 from $0.5 million in 1994. As a percentage of total
revenue, depreciation and amortization remained essentially the same. As a
percentage of adjusted revenue, these expenses increased to 1.3% from 1.0%. The
increase in absolute terms resulted primarily from the purchase of new personal
computers and increased depreciation on leasehold improvements at the Company's
previous Indianapolis facility.
Non-recurring expenses include stock option compensation expense of
$0.5 million due to the extension of the exercise period of stock options held
by one former and five current employees approved by the Company's Board of
Directors in February 1995. Additionally, the Company recorded an expense
reduction of $0.4 million, reflecting partial reimbursements by third parties
with respect to the costs of transferring operations to a new computer system. A
$1.8 million charge for the termination of this systems project was originally
recorded in December 1994 as a non-recurring expense.
Results of Operations - 1996 Discontinued Operations (WMF)
1996 earnings from discontinued operations represents the results of
operations of the Company's wholly owned subsidiary WMF since
the date of acquisition, April 1, 1996. The primary operations of
WMF are carried out through Washington Mortgage Financial. Washington
Mortgage Financial's primary business activities are commercial loan servicing,
commercial loan origination and secondary marketing. Washington Mortgage
Financial's revenue includes loan servicing fees, gains on sale of mortgage
loans, interest income on loans prior to sale, earnings on escrow deposits held
on behalf of mortgagees and other income.
Washington Mortgage Financial's revenue is to a large degree driven by the
timing of origination and sales of mortgage loans. Approximately 54% of its
revenue since the date of acquisition was derived from mortgage loan servicing,
which is considered more stable, and the remainder, or approximately 46%, was
primarily transaction driven. Washington Mortgage Financial's revenue is
somewhat sensitive to economic factors such as the general level of interest
rates and demand for commercial real estate. As a result, future revenues may
fluctuate as a result of changes in these factors. Therefore, Washington
Mortgage Financial's 1996 results may not be indicative of future periods.
Revenue related to mortgage servicing is based upon the unpaid principal balance
of loans serviced. The principal balance on these loans was $6.2 billion at
December 31, 1996, as compared with $4.5 billion on the acquisition date. The
increase is attributable to loan originations of $962 million and acquisitions
resulting in rights to service loans with a $1.3 billion principal balance, net
of normal loan amortization and run-off as of December 31, 1996. Financial
Services revenue of $21.5 million includes revenue from mortgage loan servicing
and from the origination and sale of mortgage loans.
Washington Mortgage Financial's operating interest income was $3.4 million
and its operating interest expense was $0.8 million for nine month period since
acquisition. Financial Services interest income represents primarily operating
interest income earned on originated loans between the date of closing with the
borrower (date of origination) and funding by the investor (date sold).
Financial Services operating interest expense represents primarily the interest
cost associated with warehousing the loans.
Washington Mortgage Financial's total expenses consist of salaries and
benefits (including commissions), other general and administrative expenses,
operating interest expense, provision for loan servicing losses, amortization of
mortgage servicing rights, and other depreciation and amortization. Salaries and
benefits is the largest category of costs for Washington Mortgage Financial and
increases as loan production increases due primarily to the payment of
commissions on loan originations.
Other general and administrative expenses consist of professional fees,
guarantee fees, travel, management information systems, occupancy, telephone and
equipment rental, and other expenses. Guarantee fees represent additional fees
collected from the borrower by Washington Mortgage Financial on certain loans
which are passed on to the investor. While a portion of the general and
administrative costs are fixed, these costs will also fluctuate based upon the
volume of originations and principal balance of loans serviced.
Amortization of capitalized mortgage servicing rights is recorded on a
straight-line basis over periods up to seven years. Capitalized mortgage
servicing rights represent both the costs incurred in the acquisition of
servicing rights and the portion of the costs associated with its permanent FHA
loan originations which have been allocated to
M-12
<PAGE>
the servicing rights in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 122. Washington Mortgage Financial has determined that
only its permanent FHA loan originations meet the criteria for market
determination as discussed in SFAS No. 122 and, therefore, only capitalizes
servicing rights on these originations. Capitalized mortgage servicing rights
also include the purchase accounting adjustment related to the write-up of
capitalized mortgage servicing rights to market value as of the date of
acquisition. This adjustment resulted in significantly increased amortization
expense related to capitalized mortgage servicing rights.
Provision for loan losses represents the Company's estimate of its share of
potential losses associated with loans originated under the Federal National
Mortgage Association ("Fannie Mae") Delegated Underwriting and Servicing ("DUS")
multifamily loan origination program. Washington Mortgage Financial bears a
portion of the losses on mortgages that it originates under the program that
does not exceed 20% of the original principal balance of the loans. Washington
Mortgage Financial provides a reserve for possible losses on these loans based,
in part, upon their past experience. Washington Mortgage Financial increased
this reserve by $1.0 million in the nine months since the date of acquisition.
The total principal balance of loans serviced under this program was
$648 million at April 1, 1996 and $776 million at December 31, 1996. The
allowance for loan servicing losses was $4.4 million as of December 31, 1996.
Other depreciation and amortization includes depreciation and amortization
on Washington Mortgage Financial's furniture and equipment and leasehold
improvements and the amortization of goodwill. The excess of the purchase price
over the fair value of net assets acquired was approximately $5.0 million and
has been recorded by WMF as goodwill. The furniture and equipment and leasehold
improvements are being amortized on a straight-line basis over 5 to 7 years.
Goodwill related to the Company's purchase of WMF is being
amortized on a straight-line basis over 7 years.
Washington Mortgage Financial's 1996 acquisitions of ACR and Proctor, both
discussed above, strengthened its market share in the origination of both
multifamily and other commercial mortgage loans.
Additional information regarding the results of operations of WMF is set
forth in WMF's registration statement on Form 10, filed May 14, 1997, as
amended.
Interest Income and Expense
Interest income increased $0.5 million and $0.2 million in 1996 and 1995,
respectively. The 1996 increase is due primarily to interest income recognized
on certain notes receivable acquired in conjunction with the Goldberg
Acquisition (see "Acquisitions and New Business") and interest earned on amounts
due from the Real Estate Companies. Prior to the sale of the Real Estate
Companies in August of 1995, no interest was charged on amounts due from the
Real Estate Companies since they were part of NHP Incorporated. The 1995
increase is due primarily to a higher average cash balance in 1995 and interest
earned on amounts due from the Real Estate Companies.
Interest expense decreased $1.8 million in 1996 and increased $0.1 million
in 1995. The decrease in 1996 is due primarily to a lower level of bank debt in
the first half of 1996 as compared with 1995, partially offset by interest
expense on notes payable related to the Southport and Goldberg acquisitions. The
increase in interest expense in 1995 is due primarily to higher levels of debt
in 1995, as compared with 1994, prior to the repayment of a substantial portion
of the Company's debt in August of 1995 from application of the proceeds from
the Company's IPO.
New Accounting Standards
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of,"
which requires the adjustment of the carrying value of long-lived assets and
certain identifiable intangibles if their value is determined to be impaired as
defined by the standard. The Company's adoption of SFAS No. 121 on January 1,
1996 did not have a material effect on the Company's financial position or
results of operations.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock Based
Compensation," which allows companies to adopt the fair value method for
recognition of stock-based compensation expense or to continue to use the
intrinsic value method as prescribed by Accounting Principles Board Opinion
("APB") No. 25 "Accounting for Stock Issued to Employees." SFAS No. 123's fair
value method requires companies to record compensation expense on the date of
the grant of stock options based on the fair value of the options as calculated
by option pricing models or
M-13
<PAGE>
current market prices. For those companies that do not elect to adopt the
fair value method of accounting for stock-based compensation expense, SFAS
No. 123 requires disclosure of the pro forma impact on net income and
earnings per share as if the Company had accounted for its employee stock
options under the fair value method of that statement. The Company adopted
the disclosure provisions of SFAS No. 123 for 1996 and will continue to
follow APB No. 25 in accounting for employee stock options. In accordance
with APB No. 25, because the exercise price of the Company's employee stock
options equals the market price on the underlying stock on the date of the
grant, no compensation expense is recognized. Because the Company's adoption
of SFAS No. 123 requires only additional financial statement disclosure, it
did not have an effect on the Company's financial position or results of
operations.
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers of
Financial Assets and the Extinguishment of Liabilities," which provides
accounting and reporting standards for transfers and servicing of financial
assets and extinguishment of liabilities based on consistent application of a
"financial-components" approach that focuses on control. Under that approach,
after a transfer of financial assets, an entity recognizes the financial and
servicing assets it controls and the liabilities it has incurred, derecognizes
financial assets when control has been surrendered, and derecognizes liabilities
when extinguished. The new standard is effective for transfers and servicing of
financial assets and extinguishments of liabilities occurring after December 31,
1996. Management does not expect the new standard to have a material effect on
the Company's financial position or results of operations.
In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share," which
will change the reporting of earnings per share effective in the fourth quarter
of 1997. Basic earnings per share, a measure required by the new standard, will
not include stock options as common stock equivalents and, therefore, is
expected to be higher than if the previously required primary earnings per share
were to be reported. Under the Company's current capital structure, diluted
earnings per share, also required by the new standard, will be calculated the
same as the previously required primary earnings per share
Liquidity and Capital Resources-Continuing Operations
Cash Flows
Continuing operations, particularly property management operations, have
historically provided a steady, noncyclical source of cash flow to the Company.
Net cash provided by continuing operations for the years ended December 31,
1996, 1995 and 1994 was $22.0, $9.7 and $11.9 million, respectively. The
increase in 1996 is due primarily to an increase in operating results related to
the increased average number of units under management, the new asset management
contract with CRI, Inc., the acquisition of Preferred Home Health and increases
in various other revenue categories as well as an increase due to the timing of
receipts and payments on various working capital items. The decrease in net cash
provided by continuing operations in 1995 was due primarily to the increase in
payments for income taxes and the timing of receipts and payments on various
working capital items. Cash and cash equivalents totaled $4.8 million as of
December 31, 1996. The Company also has additional borrowing capacity under its
various lines of credit as discussed below.
In 1996, net cash used in investing activities was $56.8 million. The
increase over 1995 is due primarily to the purchase of businesses, including
WMF and Preferred Home Health, investment in real estate held for
sale (the Great Atlantic Acquisition), and the purchase of long-term notes
related to the Goldberg Acquisition. In addition, the Company's purchase of
fixed assets increased due primarily to amounts paid for leasehold improvements
and furniture related to the Company's movement to new facilities in Vienna,
Virginia and Indianapolis, Indiana and additional purchases of computer
equipment and software.
For 1995, net cash used in investing activities was $16.0 million,
reflecting primarily cash used in the Congress, Hall and other acquisitions. Net
cash used in investing activities in 1994 of $4.5 million includes additional
payments for the Oxford Acquisition and purchases of fixed assets consisting
primarily of computer equipment and software.
In 1996, net cash provided by financing activities was $33.6 million which
reflects primarily additional borrowings under the Company's $75 million Credit
Facility and proceeds from the exercise of stock options, reduced by repayments
of debt.
M-14
<PAGE>
In 1995, net cash provided by financing activities was $8.8 million,
reflecting proceeds from the Company's IPO in August and borrowings on the
Company's Credit Facility (see discussion below), reduced by the net repayment
of borrowings under the Company's previous credit facility, repayment of notes
to related parties and payment of financing, offering and disposition costs. As
of the closing of the IPO, the Company borrowed $20.0 million on the Credit
Facility and used those funds together with the net proceeds of the IPO as
follows: (i) $54.7 million was used to repay in full the Company's indebtedness
under its previous credit facility, which was simultaneously terminated by the
Company; (ii) $7.0 million was used to repay a note to a former institutional
shareholder of the Company; and (iii) $5.5 million was used to repay
indebtedness to Demeter, Capricorn, and Mr. Heller. The remaining proceeds were
added to the Company's working capital. In consideration for the sale of the
Real Estate Companies in 1995, Demeter, Capricorn and Mr. Heller canceled
approximately $9.1 million of indebtedness owed by the Company to them. For
further discussion, see Note 13 to the Consolidated Financial Statements.
In 1994, net cash used in financing activities was $4.3 million, reflecting
scheduled payments under the then existing credit facility. For further
discussion of the Company's debt, see Note 6 to the Consolidated Financial
Statements.
On January 7, 1997, the Company's Board of Directors approved the
repurchase of up to 750,000 shares of the Company's common stock over a period
extending through June 30, 1998. The Company has purchased no shares in 1997
and, due to the pending AIMCO merger, has suspended the stock repurchase
program.
Credit Facility
The Company and its subsidiaries have various credit arrangements. As
previously discussed, on August 18, 1995, the Company completed an IPO of
4.3 million shares of common stock and received net proceeds of approximately
$52.0 million (the "Closing"). At that time, the Company entered into a
$75 million, three-year unsecured revolving credit facility with a group of
banks (the "Credit Facility"). At the end of two years, the Company may extend
the Credit Facility (as a revolving facility) for a fourth year or convert it to
a two-year term loan. Availability under the Credit Facility is subject to the
Company's compliance with various ratios, operating covenants and other
customary conditions. The Credit Facility also restricts the payment of
dividends by the Company unless the Company's ratio of EBITDA to interest
expense is greater than 3 to 1. In 1996, interest on the Credit Facility was
equal to 175 basis points over the London Interbank Offered Rate ("LIBOR") in
effect from time to time. In 1996, the Credit Facility also required the payment
of a commitment fee of 37.5 basis points per annum on the unused portion of the
Credit Facility. During 1996, the Credit Facility required that any other
borrowings be subordinated to the Credit Facility except up to $10 million of
borrowings made in connection with the acquisition of assets that will result in
additional management rights for the Company, Washington Mortgage Financial's
Warehouse Line (described below), and any indebtedness of Washington Mortgage
Financial incurred in the acquisition of mortgage loans or mortgage servicing
rights. As of December 31, 1996, the Company has outstanding $6.2 million of
additional unsubordinated borrowings from third parties. The Credit Facility
also permits the Company to make loans or other advances to the Real Estate
Companies up to a total of $10 million in connection with the Real Estate
Companies' acquisition of real estate assets. As of December 31, 1996 the
Company had $57.0 million outstanding under the Credit Facility leaving
$18.0 million of available borrowings.
In February 1997, the terms of the Company's $75 million Credit Facility
were amended. The significant changes in the agreement include the allowance of
up to $100 million in additional senior unsecured term debt, an increase in the
amount of unsubordinated borrowing allowed in connection with acquisitions from
$10 million to $25 million, and a reduction in the Credit Facility's overall
pricing. The interest rate has been reduced from The First National Bank of
Boston's base rate or LIBOR plus 175 basis points to a sliding scale rate which
ranges from LIBOR plus 75 basis points to LIBOR plus 125 basis points, depending
on the Company's ratio of debt to EBITDA. In addition, the commitment fee on the
unused portion of the Credit Facility may be reduced from 37.5 basis points per
annum to 25 basis points per annum, also depending on the ratio of debt to
EBITDA.
M-15
<PAGE>
WMF Separation Agreement and Intercompany Balances
Following the distribution of shares of WMF, NHP Incorporated and WMF
will operate independently and neither will have any stock ownership in the
other. In conjunction with the distribution of shares of WMF, NHP
Incorporated and WMF will enter into a separation agreement that will govern
their ongoing relationship. The separation agreement will provide, in part,
for WMF to assume all liabilities relating to the business and operations of
WMF
M-16
<PAGE>
prior to the distribution (except for the costs of the distribution) and to
indemnify NHP Incorporated for such liabilities and all expenses and costs
and losses related thereto, all on terms reasonably acceptable to AIMCO.
In addition, the separation agreement will also provide for the
settlement, at or prior to the distribution of shares, of any intercompany
amounts owed by WMF to NHP Incorporated. The intercompany amounts owed by WMF
will be forgiven by NHP Incorporated up to the amount of NHP's Free Cash
Flow, as defined by the AIMCO merger agreement, generated by NHP Incorporated
from February 1, 1997, through the date of the AIMCO merger, net of any
transactions costs (including severance and related costs) incurred by NHP
Incorporated. The remaining balance will be repaid by WMF.
The intercompany balance due from WMF to NHP Incorporated was approximately
$0.9 million and $4.5 million, as of December 31, 1996, and March 31, 1997,
respectively. The intercompany balance as of December 31, 1996, consists
primarily of intercompany tax allocations. The increased balance as of March
31, 1997, reflects advances to WMF related to the Proctor acquisition and
additional intercompany tax allocations. In April 1997, NHP Incorporated
advanced WMF an additional $4.6 million to fund an additional acquisition.
Future Capital Expenditures
In anticipation of the AIMCO Merger, the Company is not currently
pursuing acquisitions. If the merger is not completed, the Company may incur
future capital expenditures which are expected to consist largely of the
acquisition of property management rights and other possible acquisitions and
expenditures to grow the Company's customer services businesses. The Company
would expect to finance such acquisitions primarily out of operating cash
flow and bank or other borrowings, including borrowings under its credit
facility. The Company may also issue additional common stock, either for cash
to be used in connection with, or as consideration for, acquisitions. The
Company believes that it can repay indebtedness out of operating cash flow or
additional equity offerings.
The Company's capital expenditures also include costs to acquire computer
hardware and software, including software in connection with the Company's
move from mainframe technology to client-server based technology to serve its
information systems needs. As of December 31, 1996, the client-server software
and related hardware had been purchased with funds from operating cash flow. The
Company currently has no material commitments for capital expenditures.
Net Operating Loss Carryforwards (NOLs)
The Company has unused NOLs for Federal tax purposes which compose most of
the Company's deferred tax asset. The amount of deferred tax asset considered
realizable, however, could be reduced in the near term if estimates of future
taxable income during the carryforward period are reduced. Furthermore, if the
Internal Revenue Service were to determine that the consideration received by
the Company in the sale of the Real Estate Companies was less than the fair
market value of the assets transferred or that other valuations of assets made
in connection with the sale were inaccurate, the amount of the net operating
loss carryforwards available to the Company could be reduced, thus increasing
the Company's future federal income tax liability. The ability of the Company to
utilize NOLs is also limited as a result of an "ownership change" within the
meaning of Section 382 of the Internal Revenue Code of 1986, as amended. The
sale of the Company's common stock by Demeter and Capricorn to AIMCO triggered
the Section 382 limitations. As a result, Section 382 imposes an annual limit on
the ability of the Company to utilize NOLs. The amount of NOLs is, in any event,
subject to uncertainty until such time as they are used to offset income as
their validity is not
M-17
<PAGE>
reviewed by the Internal Revenue Service until such time as they are
utilized. The Company believes that the Section 382 limitations will not
significantly impact the Company's future tax liability.
The Company expects to recognize capital gain for federal income tax
purposes as a result of the distribution of the rights combined with the
later distribution of shares of WMF, previously discussed. The amount of gain
recognized by the Company will be the excess of the fair market value of WMF
on the date of the distribution of the rights, over the Company's tax basis
in WMF. The Company expects to have regular federal NOLs available in
sufficient amount to offset the gain under the regular federal income tax,
but does not expect to have sufficient alternative minimum tax NOLs available
to offset the gain under the alternative minimum tax.
Liquidity and Capital Resources - Discontinued Operations
WMF Cash Flows
1996 net cash used in discontinued operations includes the cash flows
from operating, investing and financing activities of WMF and include nine
months of activity (since the date of acquisition, April 1, 1996). Cash flow
related to WMF tends to be less predictable and depends largely on the level
of loan origination and sales activity. Operating cash flows of WMF for the
nine months of 1996 were approximately $9.7 million, net of intercompany tax
allocations. Net cash used in investing activities was $9.3 million,
reflecting the purchase of mortgage servicing rights and the ACR pipeline,
origination of mortgage servicing rights and the purchase of fixed assets.
Net cash used in financing activities was $0.3 million, reflecting the net
repayments on Washington Mortgage's $10 million Servicing Acquisition Line.
Although Washington Mortgage Financial's acquisition of Proctor was completed
as of December 31, 1996, the cash was not paid until early January 1997.
Therefore, the Proctor acquisition is not reflected as a use of cash in 1996.
WMF Long-term Debt and Lines of Credit
Washington Mortgage Financial holds the mortgages it originates only on a
short-term basis and then resells them on a precommitted basis to various
investors and, therefore, bears no interest rate risk during the holding
period. Washington Mortgage Financial has a warehouse line of credit for $150
million for purposes of originating loans (the "Warehouse Line"). The
Warehouse Line is secured by mortgage loans held for sale and is repaid upon
sale of the mortgage loans. The interest rate on the Warehouse Line was 1 to
1 1/2 percent during 1996 to the extent compensating balances are maintained,
and London InterBank Offered Rate ("LIBOR") plus 1 to 1 1/2 percent for
amounts borrowed in excess of compensating balances. The Warehouse Line
expires in August 1997, at which time the Company expects to extend it or
replace it with a similar line of credit. As of December 31, 1996, Washington
Mortgage Financial had drawn $39.9 million on the Warehouse Line leaving
$110.1 of available borrowings.
Washington Mortgage Financial has an additional warehouse agreement
providing $15 million of revolving credit at 1 1/2 to 1 5/8 percent to the
extent compensating balances are maintained and prime rate for amounts borrowed
in excess of compensating balances. Interest is payable monthly. This warehouse
line of credit is secured by mortgage loans held for sale and is paid upon sale
of the mortgage loans. As of December 31, 1996, Washington Mortgage Financial
had no amounts outstanding under this line of credit.
Washington Mortgage Financial has a separate $10 million line of credit
which was used exclusively for the acquisition of servicing rights (the
"Servicing Acquisition Line"). The interest rate on the Servicing Acquisition
Line was 3 to 3 1/2 percent to the extent compensating balances are maintained
and LIBOR plus 3 to 3 1/2 percent for amounts borrowed in excess of compensating
balances. In October 1996, the Servicing Acquisition Line was converted to a
term loan which is to be repaid in quarterly installments based on a 10 year
amortization schedule with the remaining balance due in June 2001. The Servicing
Acquisition Line is collateralized by servicing rights relating to loans with an
approximate unpaid principal balance of $1.1 billion. As of December 31, 1996,
Washington Mortgage Financial had drawn $6.2 million on the Servicing
Acquisition Line. Because this line has been converted to a term loan,
Washington Mortgage Financial cannot borrow any additional amounts under this
line.
Washington Mortgage Financial also has a revolving credit agreement
providing $10 million of revolving credit to be used for working capital or
servicing acquisition purposes (the "Working Capital Line"). The interest rate
on the Working Capital Line is 3 1/2 percent to the extent compensating balances
are maintained and LIBOR plus 3 1/2 percent for amounts borrowed in excess of
compensating balances. The Working Capital Line is renewable annually through
June 2001 and requires monthly interest payments. Any principal balance
outstanding in June 2001 would be converted to a term loan due in quarterly
installments through June 2006. The Working Capital Line is collateralized by
the same assets as the Servicing Acquisition Line. As of December 31, 1996,
Washington Mortgage Financial had no amounts outstanding under the Working
Capital Line.
Washington Mortgage Financial has an additional line of credit agreement
available for working capital purpose providing for $0.5 million of revolving
credit. The interest rate on this line of credit is the prime rate and all
borrowings must be paid off annually with interest payments due monthly. At
December 31, 1996, Washington Mortgage Financial had no amounts outstanding
under this line of credit.
Washington Mortgage Financial recently completed an agreement for an
additional $35 million warehouse line of credit facility, to be used for the
purpose of originating loans, funding advances required as a primary
servicer, and fund liquidity advances required as a master servicer of
collateralized mortgage-backed securities. The interest rate on this line of
credit is 1/2 to 3/4 percent to the extent compensating balances are
maintained and LIBOR plus 1/2 to 3/4 percent for amounts borrowed in excess
of compensating balances.
Washington Mortgage Financial has received a commitment for a secured
term loan for 1997 for up to $50 million, subject to certain conditions,
including completion of satisfactory documentation, the absence of material
adverse changes and the sale of participations in the loan. The purpose of
this line of credit is to finance the acquisition of commercial mortgage
banking companies.
As of December 31, 1996, Washington Mortgage Financial has also
established a letter of credit of $4.2 million on behalf of Fannie Mae to
fund any loan losses incurred under the DUS program. This letter of credit is
secured by cash and mortgage-backed securities with a market value of
approximately $5.1 million.
Future Capital Expenditures
In 1997, Washington Mortgage Financial intends to pursue acquisitions of
new businesses and expansion of its current business. The funds for such
acquisitions and investments are anticipated to be provided in 1997 by cash
flows and borrowings under Washington Mortgage Financial's credit facilities
and by borrowings under the Company's Credit Facility. As a result,
non-operating interest expense in 1997 is expected to be higher than in 1996.
Washington Mortgage Financial believes its funds on hand at December 31,
1996, cash flow from operations, its unused borrowing capacity under its
credit lines, and its continuing ability to obtain financing will be
sufficient to meet its anticipated operating needs and capital expenditures,
as well as planned new acquisitions and investments, for at least the next
twelve months. The magnitude of Washington Mortgage Financial's acquisition
and investment program will be governed to some extent by the availability of
capital.
Waiver of Freddie Mac Non-Compliance
As of December 31, 1996, Washington Mortgage Financial was not in
compliance with a tangible net worth standard required by Freddie Mac for
continued servicing and future origination of loans held by Freddie Mac.
Washington Mortgage Financial's non-compliance with this standard results from
the accounting treatment of servicing rights in connection with its acquisition
by the Company, and Freddie Mac's policy with respect to recognition of
servicing rights as a tangible asset, and does not reflect any deterioration in
the operating results or financial condition of Washington Mortgage Financial.
On March 26, 1997, Freddie Mac advised Washington Mortgage Financial that
Washington Mortgage Financial has financial strengths not recognized in the
tangible net worth calculation, and that Freddie Mac did not consider Washington
Mortgage Financial to be out of compliance as of December 31, 1996, and
effective for the remainder of 1997.
Discontinued Real Estate Operations
Net cash used in discontinued operations for the years ended December 31,
1995 and 1994 was $8.6 million and $0.2 million, respectively. In 1994, net cash
used in discontinued operations was primarily for additional investments in
certain partnerships, offset by partnership distributions and any proceeds from
dispositions of certain properties and partnership interests. In 1995, cash was
used primarily to invest in the general partnership interests acquired in the
Hall Acquisition.
Inflation
The Company has generally been able to offset cost increases due to
inflation with increases in revenues. Accordingly, management does not believe
that inflation has had a material effect on its results of operations to date.
However, a significant portion of Washington Mortgage Financial's revenue is
somewhat sensitive to economic factors including the general level of interest
rates. To the extent future inflation increases the general level of interest
rates, it could negatively impact Washington Mortgage Financial's results of
operations. In addition, there can be no assurance that the Company's other
operations will not be adversely affected by inflation in the future.
M-18
<PAGE>
Net Income Per Share
In February 1995, the Company's Board of Directors declared a 25 for 1
split of the Company's common stock. Accordingly, all share and per share
amounts have been restated to give retroactive recognition to the stock split
for all periods presented.
As previously discussed, on August 18, 1995, the Company completed an IPO
of 4.3 million shares of its common stock for net proceeds of approximately
$52.0 million. Although this transaction had no earnings impact, net income
per share subsequent to the IPO decreased due to the increase in shares
outstanding.
M-19
<PAGE>
[Logo] RUSSELL - THOMPSON - BUTLER & HOUSTON
CERTIFIED PUBLIC ACCOUNTANTS
LOUIS G. RUSSELL, CPA
MICHAEL C. THOMPSON, CPA
JAMES D. BUTLER, CPA
ROBERT J. HOUSTON, CPA
CONSENT OF RUSSELL, THOMPSON, BUTLER & HOUSTON
We consent to the incorporation by reference in this Current Report on Form 8-K,
filed with the Securities and Exchange Commission by NHP Incorporated (NHP) of
our reports dated as shown in Exhibit A with respect to the audit of those
entities as shown in Exhibit A for the year ended December 31, 1994, and the
incorporation by reference of such report into NHP's Registration Statement on
Form S-8 (No. 333-11933), NHP's Registration Statement on Form S-8 (No.
333-11863), NHP's Registration Statement on Form S-8 (333-11917), NHP's
Registration Statement on Form S-8 (333-11857), and NHP's Registration Statement
on Form S-8 (333-08137).
/s/ Russell, Thompson, Butler & Houston
Mobile, Alabama
June 9, 1997
<PAGE>
E X H I B I T A
<TABLE>
<CAPTION>
Real Estate Partnership Report Date
- ----------------------- -----------
<S> <C>
Housing Assistance of Mt. Dora, Ltd. January 7, 1995
Housing Assistance of Orange City, Ltd. January 7, 1995
Housing Assistance of Sebring, Ltd. January 7, 1995
Housing Assistance of Vero Beach, Ltd. January 7, 1995
Lakeview Villas, Ltd. January 7, 1995
Orange City Villas II, Ltd. January 7, 1995
Woodside Villas of Arcadia, Ltd. January 7, 1995
Grove Park Villas, Ltd. January 7, 1995
Highlands Village II January 7, 1995
Eustis Apartments, Ltd. January 7, 1995
South Hiawassee Village, Ltd. January 7, 1995
Parkview Arms Associates I January 13, 1995
Parkview Arms Associates II January 13, 1995
Twin Gables Associates January 13, 1995
Miami Elderly Associates January 13, 1995
Crosland Housing Associates January 19, 1995
Parkview Apartments, Ltd. January 19, 1995
Chesterfield Housing Associates January 19, 1995
Hemingway Housing Associates January 19, 1995
McColl Housing Associates January 19, 1995
The Meadows Apartments January 19, 1995
St. George Villas January 19, 1995
Hurbell I Limited Partnership (Holly Oak) January 21, 1995
Hurbell IV Limited Partnership (Talladega Downs) January 21, 1995
Eastcourt Village Partners January 25, 1995
United Housing Partners Cuthbert, Ltd. January 27, 1995
United Housing Partners Elmwood, Ltd. January 27, 1995
United Housing Partners Morristown, Ltd. January 27, 1995
United Housing Partners Welch, Ltd. January 27, 1995
Townview Towers I Partnership, Ltd. January 27, 1995
VOA-Nicollet Towers Associates January 28, 1995
Community Developers of Princeville January 30, 1995
Registry Square, Ltd. February 23, 1995
</TABLE>
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this Current Report on Form 8-K, filed with the Securities
Exchange Commission by NHP Incorporated ("NHP"), of our report dated April
23, 1997 with respect to the audits of NHP Incorporated for the years ended
December 31, 1996, 1995, and 1994, and the incorporation by reference of such
reports into NHP's Registration Statement on Form S-8 (No. 333-11933), NHP's
Registration Statement on Form S-8 (No. 333-11863), NHP's Registration
Statement on Form S-8 (No. 333-11917), NHP's Registration Statement on Form
S-8 (No. 333-11857), and NHP's Registration Statement on Form S-8
(No. 333-08137).
/s/ Arthur Andersen LLP
Washington, D.C.
June 9, 1997
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Current Report on Form
8-K by NHP Incorporated (NHP) of our reports on the financial
statements of certain Partnerships for the year ended December 31, 1994,
which reports are dated as shown in the following Appendices (Items 1
through 5), and on the Partnerships referred to below (Items 6 through 16):
1) Appendix A-94
2) Appendix B-94 (each of which expresses an unqualified opinion and includes
an explanatory paragraph relating to the Partnership's ability to continue
as a going concern)
3) Appendix C-94 (each of which expresses a qualified opinion as a result of
cumulative unpaid distributions recorded according to HUD guidelines which
is not in accordance with generally accepted accounting principles)
4) Appendix D-94 (each of which expresses an unqualified opinion and includes
an explanatory paragraph relating to the change in 1993 of the
Partnership's method of computing depreciation)
5) Appendix E-94 (each of which expresses an unqualified opinion and includes
an explanatory paragraph relating to the expiration of a Housing Assistance
Payment Contract)
6) Franklin Northwoods Associates, A Limited Partnership, dated March 3, 1995
(which expresses an unqualified opinion and includes an explanatory
paragraph noting that the mortgage lender has the option to require full
payment of all amounts outstanding after December 1, 1994)
7) Franklin Woods Associates, A Limited Partnership, dated March 14, 1995
(which expresses an unqualified opinion and includes an explanatory
paragraph noting that the mortgage note payable and related accrued
interest are due June 30, 1997)
8) Green Mountain Manor Limited Partnership, dated February 17, 1995 (which
expresses an unqualified opinion and includes explanatory paragraphs
relating to the expiration of a Housing Assistance Payment Contract and a
deferred acquisition note and related accrued interest which is due on
February 17, 1996)
Page 1 of 3
<PAGE>
9) Hilltop Apartment Associates, A Limited Partnership, dated February 13,
1995 (which expresses an unqualified opinion and includes explanatory
paragraphs relating to the change in 1993 of the Partnership's method of
computing depreciation and the Partnership's revised estimate in 1993 of
interest due on loans from one of its partners)
10) Leyden Limited Partnership, dated February 8, 1995 (which expresses an
unqualified opinion and includes explanatory paragraphs relating to the
Partnership's ability to continue as a going concern and the correction of
the Partnership's method of computing accrued interest on a deferred
acquisition note)
11) Madison Hill Limited Partnership, dated March 1, 1995 (which expresses an
unqualified opinion and includes an explanatory paragraph relating to the
transfer of substantially all of its assets, liabilities and its deed in
lieu of foreclosure, during February 1995, in return for $50,000)
12) Montblanc Garden Apartments Associates, A Limited Partnership, dated March
17, 1995 (which expresses an unqualified opinion and includes an
explanatory paragraph relating to a disputed outstanding mortgage principal
balance)
13) Pavilion Associates, A Limited Partnership, dated January 19, 1995 (which
expresses an unqualified opinion and includes an explanatory paragraph
relating to a deferred acquisition note and related accrued interest, and
real estate notes payable which are due February 16, 1996)
14) Spring Meadow Limited Partnership, dated February 13, 1995 (which expresses
an unqualified opinion and includes explanatory paragraphs relating to the
Partnership's ability to continue as a going concern and the correction of
the Partnership's method of computing accrued interest on a deferred
acquisition note and the correction of an error relating to Partnership
cash reflected in the financial statements)
15) Spruce Limited Partnership, dated February 6, 1995 (which expresses an
unqualified opinion and includes an explanatory paragraph relating to the
correction of the Partnership's method of computing accrued interest on a
deferred acquisition note for the years 1992 and prior and the correction
of an error relating to Partnership cash reflected in the financial
statements)
16) Waterman Limited Partnership, dated January 13, 1995 (which expresses a
qualified opinion as a result of cumulative unpaid distributions recorded
according to HUD guidelines which is not in accordance with generally
accepted accounting principles, and includes an explanatory paragraph
regarding a deferred acquisition note and related accrued interest which
is due on April 18, 1996),
Page 2 of 3
<PAGE>
and the incorporation by reference of such reports into NHP's Registration
Statements on Form S-8 (No. 333-11933, No. 333-11863, No. 333-11917, No.
333-11857 and No. 333-08137), insofar as such reports relate to the financial
statements of the Partnerships (identified in Items 1 through 16 above) for the
year ended December 31, 1994.
Deloitte & Touche LLP
McLean, Virginia
June 9, 1997
Page 3 of 3
<PAGE>
Appendix A-94
-------------
Partnership Report Date
- ----------- -----------
107-145 West 135th Street Associates February 9, 1995
Algonquin Tower Limited Partnership February 9, 1995
All Hallows Associates January 26, 1995
Allentown Towne House Limited Partnership January 26, 1995
Anglers Manor Associates February 2, 1995
Antioch Apartments, Ltd. January 11, 1995
Arvada House Associates February 2, 1995
Audobon Park Associates January 12, 1995
Baldwin Oaks Elderly, Ltd. February 6, 1995
Baldwin Towers Associates February 10, 1995
Basswood Manor Limited Partnership January 25, 1995
Bayview Hunters Point Apartments January 26, 1995
Bensalem Gardens Associates February 3, 1995
Berkley Limited Partnership February 14, 1995
Bloomsburg Elderly Associates February 1, 1995
Briarwood Apartments January 19, 1995
Brinton Manor No. 1 Associates January 21, 1995
Brinton Towers Associates January 24, 1995
Brookside Apartments Associates February 1, 1995
Buena Vista Apartments, Ltd. January 16, 1995
Cabell Associates of Lakeview January 21, 1995
California Square Limited Partnership January 30, 1995
California Square II Limited Partnership January 30, 1995
Campbell Heights Associates February 2, 1995
Canterbury Gardens Associates February 1, 1995
Capital Park Limited Partnership January 19, 1995
Center Square Associates January 25, 1995
Chapel NDP January 30, 1995
Cheyenne Village Apartments, Ltd. February 3, 1995
College Heights January 19, 1995
College Park Apartments February 8, 1995
College Park Associates January 27, 1995
Community Developers of High Point January 30, 1995
Congress Park Associates II February 9, 1995
Copperwood Limited January 31, 1995
Copperwood II Limited January 25, 1995
Cypress Gardens, Limited January 20, 1995
Darby Townhouses Associates January 18, 1995
Darbytown Development Associates January 11, 1995
Delcar - S, Ltd. January 9, 1995
Delcar - T, Ltd. January 20, 1995
DIP Limited Partnership January 20, 1995
DIP Limited Partnership - II February 3, 1995
DIP Limited Partnership III February 15, 1995
1
<PAGE>
Appendix A-94
-------------
Partnership Report Date
- ----------- -----------
Discovery Limited Partnership February 7, 1995
Doral Gardens Associates February 1, 1995
Duquesne Associates No. 1 January 16, 1995
Edmond Estates Limited Partnership January 21, 1995
Elden Limited Partnership January 30, 1995
Esbro Limited Partnership January 12, 1995
Fairmont #1 Limited Partnership February 3, 1995
Fairmont #2 Limited Partnership February 6, 1995
Fairwood Associates February 6, 1995
Federal Square Village January 18, 1995
Field Associates January 21, 1995
Forest Green Limited Partnership January 16, 1995
Forest Park Elderly Associates January 13, 1995
Forrester Gardens, Ltd. January 12, 1995
Fort Carson Associates January 12, 1995
Foxwood Manor Associates January 11, 1995
Franklin Chapel Hill Associates February 23, 1995
Franklin Park Limited Partnership February 9, 1995
Friendset Housing Company January 17, 1995
Frio Housing, Ltd. February 2, 1995
G.W. Carver Limited January 26, 1995
Galion Limited Partnership January 30, 1995
Garfield Hill Associates January 17, 1995
Gateway Village Associates January 18, 1995
Gladys Hampton Houses Associates February 6, 1995
Golden Apartments I February 6, 1995
Golden Apartments II March 1, 1995
Grandview Apartments January 11, 1995
Greater Mount Calvary Terrace, Ltd. January 18, 1995
Greater Richmond Community Development
Corp. I and Associates February 14, 1995
Greater Richmond Community Development
Corp. II and Associates February 13, 1995
Griffith Limited Partnership January 11, 1995
Gulfway Limited Partnership January 13, 1995
H.R.H. Properties, Ltd. February 3, 1995
Hamilton Heights Associates January 26, 1995
Harold House Limited Partnership January 14, 1995
Hatillo Housing Associates March 17, 1995
Hickory Ridge Associates, Ltd. January 19, 1995
Hillcrest Green Apartments, Ltd. January 10, 1995
Hillside Village Associates February 9, 1995
Hilltop Limited Partnership January 17, 1995
Hopkins Renaissance Associates February 1, 1995
2
<PAGE>
Appendix A-94
-------------
Partnership Report Date
- ----------- -----------
Hudson Terrace Associates January 26, 1995
Hurbell II Limited Partnership January 13, 1995
Indian Valley I Limited Partnership January 30, 1995
Indian Valley II Limited Partnership January 30, 1995
Indian Valley III Limited Partnership January 30, 1995
Ingram Square Apartments, Ltd. January 26, 1995
Jamestown Village Associates January 12, 1995
Jersey Park Associates January 20, 1995
JFK Associates January 26, 1995
Johnston Square Associates January 17, 1995
JVL 16 Associates January 16, 1995
Kennedy Homes Limited Partnership January 17, 1995
Key Parkway West Associates January 30, 1995
Kimberly Associates Limited Partnership January 10, 1995
La Salle Apartments January 17, 1995
La Vista Associates February 9, 1995
Lafayette Manor Associates February 15, 1995
Lafayette Towne Elderly, Ltd. February 3, 1995
Lafayette Towne Family, Ltd. February 3, 1995
Lake Forest Apartments January 20, 1995
Las Americas Housing Associates March 17, 1995
Lassen Associates January 31, 1995
Laurel Gardens February 1, 1995
Lewisburg Associates January 26, 1995
Lewisburg Elderly Associates January 19, 1995
Lincmar Associates January 31, 1995
Lincoln Park Associates February 3, 1995
Lock Haven Elderly Associates February 7, 1995
Lock Haven Gardens Associates January 30, 1995
Loring Towers Apartments Limited Partnership January 12, 1995
M & P Development Company January 13, 1995
Maple Park East Limited Partnership January 17, 1995
Maple Park West Limited Partnership January 10, 1995
Mayfair Manor Limited Partnership January 16, 1995
Meadowood Apartments - Phase I (Meadowood
Associates, Ltd.) January 17, 1995
Meadowood Apartments - Phase II (Meadowood
Associates, Ltd.) January 12, 1995
Meadows Apartments Limited Partnership January 23, 1995
Meadows East Apartments Limited Partnership January 17, 1995
Menlo Limited Partnership January 13, 1995
Merced Commons II February 7, 1995
Mill Street Associates February 3, 1995
Miramar Housing Associates March 17, 1995
3
<PAGE>
Appendix A-94
-------------
Partnership Report Date
- ----------- -----------
Montblanc Housing Associates March 17, 1995
Morrisania Towers Housing Company January 25, 1995
Moss Gardens Ltd. February 1, 1995
Murphy Blair Associates III February 1, 1995
New Lake Village Apartments January 20, 1995
New West 111th Street Housing Company February 3, 1995
Newton Hill Limited Partnership January 30, 1995
Northgate Village Limited Partnership January 16, 1995
Northlake Terrace Associates February 8, 1995
Northwest Terrace Associates February 8, 1995
Oakland Village Townhouse Associates February 8, 1995
Ocala Place, Ltd. February 7, 1995
One Lytle Place February 2, 1995
One West Conway Associates February 22, 1995
Orange Village Associates February 8, 1995
Palm House Limited Partnership January 30, 1995
Park Avenue West I Limited Partnership January 30, 1995
Park Avenue West II Limited Partnership January 30, 1995
Park Creek Limited Partnership January 11, 1995
Place One Limited Partnership February 11, 1995
Portland Plaza Partnership February 7, 1995
Portner Place Associates February 15, 1995
Post Street Associates January 25, 1995
Pride Gardens Limited Partnership January 20, 1995
Pueblo Apartments Associates, Ltd. January 20, 1995
RI-15 Limited Partnership February 3, 1995
River Front Apartments Limited Partnership January 11, 1995
River Woods Associates February 13, 1995
Riverview II Associates January 27, 1995
Rockwell Limited Partnership January 13, 1995
Rolling Meadows Of Ada, Ltd. January 10, 1995
Ruffin Road Associates February 6, 1995
Rutherford Park Townhouses Associates February 8, 1995
San Jose Limited Partnership January 12, 1995
San Juan Del Centro Limited Partnership January 17, 1995
Sencit Towne House Limited Partnership January 25, 1995
Shoreview Apartments February 8, 1995
Site 10 Community Alliance Associates February 7, 1995
Sleepy Hollow Apartments January 26, 1995
SNI Development Company January 24, 1995
Southmont Apartments January 31, 1995
Southward Limited Partnership January 13, 1995
Stafford Apartments January 27, 1995
Stock Island Limited Partnership January 18, 1995
4
<PAGE>
Appendix A-94
-------------
Partnership Report Date
- ----------- -----------
Storey Manor Associates February 3, 1995
Strawbridge Square Associates Limited Partnership February 6, 1995
Summersong Townhouses Limited Partnership January 26, 1995
Sunrise Associates February 10, 1995
Sunset Plaza Apartments January 20, 1995
Susquehanna View Limited Partnership January 16, 1995
Timberlake Apartments Limited Partnership January 19, 1995
Timuquana Park Associates January 18, 1995
Tinker Creek Limited Partnership January 10, 1995
Town North January 18, 1995
Treeslope Apartments Associates January 26, 1995
Trinity Towers - 14th Street Associates, Ltd. March 7, 1995
United Handicap Federation Apartment Associates February 13, 1995
United House Associates February 9, 1995
United Housing Partners - Carbondale, Ltd. February 8, 1995
United Redevelopment Associates January 26, 1995
University Plaza Associates February 9, 1995
Vantage 78 March 7, 1995
Villa De Guadalupe Associates January 16, 1995
Village Circle Apartments, Ltd. January 31, 1995
Village Green Limited Partnership January 20, 1995
Vistas De San Juan Associates February 13, 1995
Waico Apartments Associates January 17, 1995
Waico Phase II Associates February 1, 1995
Walden Oaks Associates January 31, 1995
Walmsley Terrace Associates January 18, 1995
Walnut Hills Associates, Ltd. January 13, 1995
Wash-West Properties January 31, 1995
Waters Towers Associates January 12, 1995
West Oak Village Limited Partnership January 27, 1995
Whitefield Place, Ltd. January 26, 1995
Woodmark Limited Partnership January 30, 1995
Yadkin Associates January 13, 1995
5
<PAGE>
Appendix B-94
-------------
Partnership Report Date
- ----------- -----------
Boynton Beach Limited Partnership March 17, 1995
Central Village Associates February 10, 1995
Cheek Road Limited Partnership February 7, 1995
Clay Courts Associates January 12, 1995
Eastman Associates January 24, 1995
Elm Creek Limited Partnership February 7, 1995
Fairmeadows Limited Partnership January 12, 1995
Fairview Homes Associates January 27, 1995
Franklin Eagle Rock Associates February 28, 1995
Franklin Pheasant Ridge Associates March 1, 1995
Franklin Ridgewood Associates February 24, 1995
Hamilton Gardens, Ltd. February 13, 1995
JVL Limited January 14, 1995
JVL 18 Associates February 3, 1995
JVL 19 Associates January 27, 1995
Langenheim Associates February 1, 1995
Meadowood Associates III, Ltd. January 15, 1995
New West 111th Street Two Associates January 25, 1995
Olde Rivertown Venture February 2, 1995
Retirement Manor Associates February 17, 1995
Royal Towers Limited Partnership January 12, 1995
Southridge Apartments Limited Partnership January 10, 1995
Springfield Limited Partnership January 13, 1995
Trinity Apartments January 13, 1995
Village Park II February 3, 1995
<PAGE>
Appendix C-94
-------------
Partnership Report Date
- ----------- -----------
Cottonwood Apartments January 11, 1995
Kenneth Arms Apartments January 9, 1995
Knollcrest Apartments January 21, 1995
Manzanita Arms Apartments January 11, 1995
Overbrook Park, Ltd. January 23, 1995
Rancho Arms Apartments January 17, 1995
San Juan Apartments January 24, 1995
Trinity Hills Village Apartments January 13, 1995
Tumast Associates February 8, 1995
Verdes Del Oriente February 1, 1995
<PAGE>
Appendix D-94
-------------
Partnership Report Date
- ----------- -----------
Cumberland Court Associates February 9, 1995
Maple Hill Associates February 15, 1995
Merced Commons I February 1, 1995
<PAGE>
Appendix E-94
-------------
Partnership Report Date
- ----------- -----------
Brightwood Manor Associates January 26, 1995
Caroline Arms Limited Partnership January 18, 1995
Richlieu Associates February 11, 1995
Sherman Terrace Associates January 13, 1995
Washington Manor Limited Partnership January 26, 1995
<PAGE>
Consent of Anders, Minkler & Diehl LLP
We consent to the incorporation by reference in this Current Report on Form 8-K,
filed with the Securities and Exchange Commission by NHP Incorporated (NHP) of
our reports dated February 3, 6, 9, 11, 14, 15 and 20, 1995 with respect to the
audits of these Partnerships:
<TABLE>
<S> <C>
Pershing Waterman Phase I (DB I) Caroline Associates I
PW III Associates (DB II) Columbus Square Associates I
PW IV Associates (DB III) Columbus Square Associates II
PW V Associates (DB IV) Savoy Court Associates
PW VI Associates (DB V) Wigar, Ltd. (Winter Garden)
</TABLE>
for the year ended December 31, 1994, and the incorporation by reference of
such reports into NHP's Registration Statement on Form S-8 (No. 333-11933),
NHP's Registration Statement on Form S-8 (No. 333-11863), NHP's Registration
Statement on Form S-8 (No. 333-11917), NHP's Registration Statement on Form
S-8 (No. 333-11857), and NHP's Registration Statement on Form S-8 (No.
333-08137).
/s/ Anders, Minkler & Diehl LLP
St. Louis, Missouri
June 9, 1997
<PAGE>
DAUBY O'CONNOR & ZALESKI
A LIMITED LIABILITY COMPANY
Certified Public Accountants
Consent Letter for Independent Auditors
We consent to the incorporation by reference in this Current Report on Form 8-K,
filed with the Securities and Exchange Commission by NHP Incorporated (NHP) of
our reports dated as referred to in Schedule I with respect to the audits
referred to on Schedule I for the year ended December 31, 1994, and the
incorporation by reference of such reports into NHP's Registration Statement on
Form S-8 (No. 333-11933). NHP's Registration Statement on Form S-8 (No.
333-11863), NHP's Registration Statement on Form S-8 (No. 333-11917), NHP's
Registration Statement on Form S-8 (No. 333-11857), and NHP's Registration
Statement on Form S-8 (No. 333-08137).
/s/ Dauby O'Connor & Zaleski, LLC
June 9, 1997 Dauby O'Connor & Zaleski, LLC
Indianapolis, Indiana Certified Public Accountants
<PAGE>
SCHEDULE I
AUDITS FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
<S> <C>
REPORT DATE PARTNERSHIP NAME
- ----------- ----------------
January 7, 1995 Brookview Apartments Company Limited
March 13, 1995 Clover Ridge East Limited Partnership
January 7, 1995 Colony Apartments Company Limited
January 25, 1995 East Hampton Limited Partnership
January 25, 1995 Edgewood II Associates
January 20, 1995 Fairburn & Gordon Associates, Phase I
January 20, 1995 Fairburn & Gordon Associates, Phase II
January 30, 1995 Laing Village
January 25, 1995 Oakland City/West End Associates, Ltd.
January 30, 1995 Orangeburg Manor
February 6, 1995, except for Note 8
which is dated June 9, 1995 Parkways Associates
January 25, 1995 Pleasant Valley Apartments, Ltd.
January 25, 1995 Sandy Springs Associates, Ltd.
February 8, 1995 The Oak Park Partnership
February 6, 1995, except for Note 8
which is dated June 9, 1995 The Rogers Park Partnership
February 8, 1995 Tiffany Rehab Associates
January 20, 1995 Village Green Apartments Company Limited
January 25, 1995 Vineville Towers Associates, Ltd.
January 20, 1995 Westgate Apartments
</TABLE>
<PAGE>
Exhibit 23.5
[LETTERHEAD]
Consent of Edwards Leap & Sauer
We consent to the incorporation by reference in this Current Report on Form
8-K, filed with the Securities and Exchange Commission by NHP Incorporated
(NHP) of our reports dated February 3, February 15, and March 15, 1995, with
respect to the audits of IDA Tower, Genesee Gardens Associates, and Buffalo
Village Associates, respectively, for the year ended December 31, 1994, and
the incorporation by reference of such reports into NHP's Registration
Statement on Form S-8 (No. 333-11933), NHP's Registration Statement on Form
S-8 (No. 333-11863), NHP's Registration Statement on Form S-8 (333-11917),
NHP's Registration Statement on Form S-8 (333-11857), and NHP's Registration
Statement on Form S-8 (333-08137).
/s/ Edwards Leap & Sauer
- ----------------------------
Edwards Leap & Sauer
Hollidaysburg, Pennsylvania
June 9, 1997
<PAGE>
[LETTERHEAD]
Consent of George A. Hieronymus and Company, L.L.C.
We consent to the incorporation by reference in this Current Report on Form
8-K, filed with the Securities and Exchange Commission by NHP Incorporated
(NHP) of our reports dated as shown in Exhibit A with respect to the audit of
those entities as shown in Exhibit A for the year ended December 31, 1994,
and the incorporation by reference of such report into NHP's Registration
Statement on Form S-8 (No. 333-11933), NHP's Registration Statement on Form
S-8 (No. 333-11863), NHP's Registration Statement of Form S-8 (333-11917),
NHP's Registration Statement on Form S-8 (333-11857), and NHP's Registration
Statement on Form S-8 (333-08137).
/s/ George A. Hieronymus and Company L.L.C.
Mobile, Alabama
June 9, 1997
<PAGE>
E X H I B I T A
<TABLE>
<CAPTION>
<S> <C>
Real Estate Partnership Report Date
- ----------------------- -----------
Athens Arms Associates January 27, 1995
Colonial Terrace I Associates January 27, 1995
Colonial Terrace II Associates January 27, 1995
</TABLE>
<PAGE>
CONSENT OF GOLDENBERG ROSENTHAL FRIEDLANDER, LLP
We consent to the incorporation by reference in this Current Report on Form
8-K, filed with the Securities and Exchange Commission by NHP of our reports
with respect to the audits of the Partnerships named below for the year ended
December 31, 1994, and the incorporation by reference of such reports into NHP's
Registration Statement on Form S-8, (No. 333-11933), NHP's Registration
Statement on Form S-8 (No. 333-11863), NHP's Registration Statement on Form S-8
(333-11917), NHP's Registration Statement on Form S-8 (333-11857) and NHP's
Registration Statement on Form S-8 (333-08137).
<TABLE>
<CAPTION>
<S> <C>
Name of Partnership Date of Report
- ------------------- --------------
Baisley Park Associates (A Limited Partnership) 2/03/95
Brunswick Village Limited Partnership 1/23/95
Churchview Gardens Limited Partnership 1/23/95
Harris Gardens Limited Partnership 1/23/95
Hawksworth Limited Partnership 1/21/95
Hollows Associates (A Limited Partnership) 2/03/95
Kimberton Apartments Associates (A Limited Partnership) 1/18/95
Washington Northgate Limited Partnership 2/03/95
Washington Westgate Limited Partnership 1/28/95
Windsor Apartments Associates (A Limited Partnership) 1/18/95
</TABLE>
/s/ Goldenberg Rosenthal Friedlander, LLP
Jenkintown, PA
June 9, 1997
<PAGE>
HANSEN, HUNTER & KIBBEE, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
10260 S.W. Greenburg Road
Telephone Suite 1150 Facsimile
(503) 244-2134 Portland, Oregon 97223 (503) 244-9754
We consent to the incorporation by reference in this Current Report on Form 8-K,
filed with the Securities and Exchange Commission by NHP Incorporated (NHP) of
our reports dated, January 13, 1995, January 19, 1995, January 13, 1995, January
19, 1995, January 13, 1995, January 19, 1995, January 11, 1995, January 14,
1995, and January 13, 1995 with respect to the audits of Franklin Chandler
Associates, Haines Associates Limited Partnership, King-Bell Associates,
Monmouth Associates Limited Partnership, Pendleton Riverside Apartments Oreg.,
Ltd., Penn Hall Associates, Rodeo Drive Limited Partnership, South Mountain
Terrace, Ltd., and Woodland Apartments, Oreg., Ltd. for the year ended December
31, 1994, and the incorporation by reference of such reports into NHP's
Registration Statement on Form S-8 (No. 333-11933), NHP's Registration Statement
on Form S-8 (No. 333-11863), NHP's Registration Statement on Form S-8
(333-11917), NHP's Registration Statement on Form S-8 (333-11857), and NHP's
Registration Statement on Form S-8 (333-08137).
Portland, Oregon
June 9, 1997
/s/ Hansen, Hunter & Kibbee, P.C.
<PAGE>
CONSENT OF J. H. COHN LLP
We consent to the incorporation by reference in this Current Report on Form
8-K, which is being filed with the Securities and Exchange Commission by NHP
Incorporated ("NHP"), of our report dated April 26, 1995 with respect to our
audit of the financial statements of Marlboro Greens Limited Partnership for
the years ended December 31, 1994 and 1993, and the incorporation by
reference of such report into NHP's Registration Statement on Form S-8
(No. 333-11933), NHP's Registration Statement on Form S-8 (No. 333-11863),
NHP's Registration Statement on Form S-8 (No. 333-11917), NHP's Registration
Statement on Form S-8 (No. 333-11857) and NHP's Registration Statement on
Form S-8 (No. 333-08137).
/s/ J. H. Cohn LLP
J. H. COHN LLP
Roseland, New Jersey
June 9, 1997
<PAGE>
INDEPENDENT AUDITOR'S CONSENT
We consent to the incorporation by reference in this Current Report on Form 8-K,
filed with the Securities and Exchange Commission by NHP Incorporated (NHP) of
our reports with respect to the audits of the partnerships listed below for the
year ended December 31, 1994, and the incorporation by reference of such reports
into NHP's Registration Statement on Form S-8 (No. 333-11933), NHP's
Registration Statement on Form S-8 (No. 333-11863), NHP's Registration Statement
on Form S-8 (No. 333-11917), NHP's Registration Statement on Form S-8 (No.
333-11857), and NHP's Registration Statement on Form S-8 (No. 333-08137).
<TABLE>
<CAPTION>
Date of
Partnership Auditor's Report
----------- ----------------
<S> <C>
630 East Lincoln Avenue Associates January 24, 1995
Aspen Stratford Apartments Company B January 31, 1995
Aspen Stratford Apartments Company C February 1, 1995
Benjamin Banneker Plaza Associates January 31, 1995
Brightwood Limited Partnership January 10, 1995
Cambridge Heights Apartments, Ltd. February 15, 1995
Carter Associates Limited Partnership March 4, 1995
Cherry Estates January 18, 1995
Christopher Court Housing Company January 27, 1995
Concord Houses Associates March 7, 1995
Duke Manor Associates February 14, 1995
Elderly Housing Associates Ltd. Partnership January 25, 1995
Forest Apartments Associates February 16, 1995
Gate Manor Apartments, Ltd. January 30, 1995
Greenfield Apartments Limited Partnership January 27, 1995
Greenfield North Apartments Limited Partnership January 23, 1995
Haili Associates February 6, 1995
Houston Aristocrat Apartments, Ltd. January 24, 1995
Kapuna Associates February 6, 1995
Kinloch Urban East Housing February 10, 1995
Koolau Housing Associates February 6, 1995
Lakeview Arms Associates February 2, 1995
Lee-Hy Manor Associates Limited Partnership February 8, 1995
Locust Park Associates February 1, 1995
Loring Towers Associates March 3, 1995
Mahoning Associates January 31, 1995
Milliken Apartments Company February 1, 1995
Monument Street Limited Partnership February 8, 1995
Neighborhoods of the Universities Lock Street Apartments Company February 3, 1995
Oak Hollow South Associates February 21, 1995
Orchard Mews Associates February 15, 1995
Oxford Place Associates February 8, 1995
Pittsfield Neighborhood Associates March 9, 1995
Prince Street Towers Limited Partnership February 6, 1995
Sencit-Lebanon Company January 20, 1995
St. Nicholas Associates February 20, 1995
Tamarac Pines, Ltd. February 18, 1995
Tamarac Pines II, Ltd. February 9, 1995
Taunton Green Associates March 1, 1995
Taunton II Associates February 24, 1995
Tompkins Terrace Associates February 23, 1995
Waipahu Associates February 6, 1995
Washington Chinatown Associates February 15, 1995
Woodcrest Apartments, Ltd. January 16, 1995
Worcester Episcopal Housing Company February 23, 1995
</TABLE>
/s/ J. A. Plumer & Co., P.A.
J. A. PLUMER & CO., P.A.
Bethesda, Maryland
June 9, 1997
<PAGE>
AUDITOR'S CONSENT
We consent to the incorporation by reference in this Current Report on Form
8-K, filed with the Securities and Exchange Commission by NHP Incorporated
(NHP) of our report dated January 19, 1995 with respect to the audit of Two
Bridges Associates for the year ended December 31, 1994, and the
incorporation by reference of such report into NHP's Registration Statement
on Form S-8 (No. 333-11933), NHP's Registration Statement on Form S-8 (No.
333-11863), NHP's Registration Statement on Form S-8 (333-11917), NHP's
Registration Statement on Form S-8 (333-11857) and NHP's Registration
Statement on Form S-8 (No.333-08137).
/s/ Marks Shron & Company, LLP
Marks Shron & Company, LLP
Great Neck, New York
June 9, 1997
<PAGE>
CONSENT OF REZNICK FEDDER & SILVERMAN
_____________________________
We consent to the incorporation by reference in this Current Report on Form
8-K, filed with the Securities Exchange Commission by NHP Incorporated (NHP)
of our reports dated as per the attached schedule with respect to the audits
of the partnerships per the attached schedule for the year ended December 31,
1994, and the incorporation by reference of such reports into NHP's
Registration Statement on Form S-8 (No. 333-11933), NHP's Registration
Statement on Form S-8 (333-11863), NHP's Registration Statement on Form S-8
(333-11917), NHP's Registration Statement on Form S-8 (333-11857), and NHP's
Registration Statement on Form S-8 (333-08137).
/s/ Reznick Fedder & Silverman
REZNICK FEDDER & SILVERMAN
Bethesda, Maryland
June 9, 1997
<PAGE>
ATTACHMENT
SCHEDULE OF PARTNERSHIPS
<TABLE>
<CAPTION>
PARTNERSHIP NAME DATED
- ---------------- -----
<S> <C>
Beautiful Village Associates Redevelopment Company February 8, 1995
Branchwood Towers Limited Partnership February 7, 1995
Citrus Park Associates, Ltd. January 31, 1995
Community Circle II Limited January 26, 1995
Copperstone Limited Partnership January 19, 1995
Diakonia Associates Limited Partnership January 31, 1995
Easton Terrace I Associates January 24, 1995
Easton Terrace II Associates February 9, 1995
Eastridge Apartments January 13, 1995
Emory Grove Associates Limited Partnership February 6, 1995
First Alexandria Associates January 20, 1995
Flatbush NSA Associates January 30, 1995
Franklin Square School Associates January 12, 1995
Gates Mill I Limited Partnership February 1, 1995
Grosvenor House Associates Limited Partnership February 10, 1995
Harris Park Limited Partnership February 8, 1995
Hollybush Gardens I January 27, 1995
Hollybush Gardens II January 27, 1995
Intown West Associates Limited Partnership January 27, 1995
Lake Avenue Associates February 6, 1995
Lake Crossing Limited Partnership January 11, 1995
Lakehaven Associates One January 25, 1995
Lakehaven Associates Two January 20, 1995
Linden Court Associates January 30, 1995
Loudoun House Limited Partnership February 13, 1995
Monaco Arms Associates I January 30, 1995
Monaco Arms Associates II January 25, 1995
Muske Limited Partnership February 3, 1995
Natick Associates January 31, 1995
Oakcrest Terrace Apartments February 8, 1995
Oakwood Limited Partnership February 3, 1995
Parkview Associates January 20, 1995
Queenstown Apartments Limited Partnership February 9, 1995
Rancho Townhouse Associates February 3, 1995
Ruscombe Gardens Limited Partnership January 30, 1995
Sencit - Jacksonville Company LTD January 14, 1995
Sheffield Associates February 8, 1995
Snap IV Limited Partnership January 31, 1995
Tara Bridge Limited Partnership January 20, 1995
Twin Towers Associates February 10, 1995
Tyee Associates Limited Partnership January 13, 1995
Urbanization Maria Lopez Housing Company February 3, 1995
Westminster Associates January 31, 1995
Wollaston Manor Associates January 25, 1995
Woodside Village Limited Partnership January 13, 1995
</TABLE>
